Greece: Clarifications pending on the use of foreign terminal losses

February 27 2018

The imposition of L 4446/2016 tried to clarify the provisions relating to the tax treatment of losses generated abroad, by amending Article 27 of the Greek Income Tax Code (L 4172/2013).

More specifically, Article 27 generally stated the inability to offset losses generated abroad with profits incurred in Greece, excluding such losses generated in an EU/EEA country with which Greece had either signed a double tax treaty (DTA), based on which profits from a business activity abroad are not exempt, or with which Greece had not signed a DTA (in accordance with circular POL 1088/2016).

With the new provisions of Article 124 of L 4446/2016, it is now explicitly clarified that from January 1 2014 onwards, losses generated abroad from a permanent establishment cannot be used to offset existing or future profits in Greece, while the above exception still remains.

Following the renowned European Court of Justice judgment for the Marks & Spencer case (C446/03), circular POL 1200/2016 provided further clarifications on the implementation of the new provisions, setting the condition that only terminal losses deriving from the liquidation of the permanent establishment could be used to offset profits in Greece. In other words, the permanent establishment should have exhausted the possibilities of using these losses in the country where it was established before their use could be considered in Greece.

For the feasible use of losses resulting from a permanent establishment in an EU/EEA country, these should be monitored on a country-by-country basis and in a way that is easy to ascertain their origin each time. Failure of the taxpayer to easily prove the origin of the losses intended to be used in Greece will render the provisions inapplicable and any such losses taken into account for the determination of the tax result in Greece will be disregarded.

For the correct implementation of the above, the taxpayer must be able to prove by any appropriate means that the losses have become terminal, the amount thereof, the year in which they became terminal, and that all possibilities of using these losses in the country of establishment have been exhausted.

Moreover, the relevant provisions give certain examples of what 'appropriate means' may refer to in order for the taxpayer to establish the above, such as by providing to the Greek tax authorities a relevant certificate from the foreign tax authority or alternatively, a relevant report by a statutory auditor in the country of establishment.

However, a controversy ensued as regards the aforementioned examples focusing on the type of losses that could be used in Greece, i.e. whether they are accounting or tax losses. In other words, a certificate from the foreign tax authority leads us to believe that the new provisions refer to tax losses, while on the contrary a report by a statutory auditor can only mean accounting losses.

So, despite the fact that these new regulations provide much-anticipated clarifications on the overseas-generated loss treatment, at the same time they still lead to skeptical conclusions on the type of said losses. This is a situation pending resolution as of today, given that no further guidance has been provided by the Independent Authority for Public Revenues.