In an expected move, the Greek tax administration has acknowledged that paid foreign tax is credited against domestic special solidarity tax. This development could be of importance for Greek tax residents who earn foreign-sourced financial income.
In compliance with the decision no. 2465/2018 of Greece’s Supreme Administrative Court, according to which the special solidarity tax, as provided by Article 29 of L. 3986/2011 and Article 43A of the Greek Code of Income Tax, constitutes an “ordinary” or regular tax on income which falls within the scope of the double tax conventions (DTCs) signed by Greece. The Greek tax administration issued Circular E.2147/2019 acknowledging that the foreign income tax paid by a Greek tax resident individual is allowed to be set-off against the domestic special solidarity tax amount due.
Before that, the Greek tax administration had accepted that a foreign tax resident, who – based on the provisions of the applicable DTC – is exempted from income tax, should also be exempted from Greek special solidarity tax.
Of all the 57 DTCs signed by Greece, only the one with India provides for this exemption as a double tax relief method, while the rest 56 DTCs provide for a double tax relief through the limited tax credit method, similar to what is provided by Article 23 B of the OECD’s Model Tax Convention for the avoidance of double taxation.
Until now, the Greek tax administration had not been keen to clear its stance as to whether or not the agreements for the avoidance of DTCs signed by Greece with partner countries allow for a credit of the foreign tax paid against domestic special solidarity tax. Thus, in practice, the foreign tax paid was credited against only the amount of domestic income tax.
The impact of the circular is retroactive, as it allows the taxpayers to claim from 2015 onwards and ask for the foreign tax credit against the special solidarity tax assessed, even though they have already filed their tax returns and eventually paid the relevant income tax assessment notices. The amending tax return may be timely submitted until the last working day of 2019.
The Circular E.2147/2019 includes a further step to implement the 2465/2018 decision of the Supreme Administrative Court, adding to the correct interpretation of the scope of Article 1 of the DTC, and protecting further the legal supremacy of the DTCs. It is noted that a credit may be available in any case only up to the aggregate amount of the Greek income tax and special solidarity tax due (limited tax credit).
It remains to be seen whether the above development could also enable a foreign special solidarity tax to be easily recognised by the Greek tax administration as eligible for a foreign tax credit against the aggregate amount of Greek income tax and Greek special solidarity tax due.
Konstantinos Mavraganis
T: +30 694 04 46 690
E: Konstantinos.Mavraganis@gr.ey.com
