Greece has issued guidance on how the COVID-19-related unprecedented measures undertaken by various countries worldwide may impact the Greek tax rules and tax treaties currently in place.
The guidance concerns the determination of the tax residence for both individuals and corporations (place of effective management) and the criteria for the existence of a permanent establishment in Greece (Circular 2113/2020 and 2130/2021 issued by Greece’s Independent Authority for Public Revenue).
Circular 2113/2020 followed the initial OECD analysis of the impact of COVID-19-related measures on the rules of tax treaties and has been revised as per the OECD’s updates (Circular 2130/2021).
As a general remark, the aim of the guidance is to adopt a practical approach on the attribution of taxing rights between Greece and other countries on double taxation matters that could be raised due to the pandemic.
In this respect, the guidance recognises the ‘new reality’, where individuals residing permanently abroad needed to stay in Greece due to travel restrictions to and from their homes, or have chosen to return on a temporary basis to Greece as a measure of personal protection and security during this period.
Initially, the period between March 18 2020 until June 15 2020 (first lockdown in Greece) was considered as the first period of objective inability to travel and subsequently the period between November 9 2020 until May 14 2021 (second lockdown) was considered as the second one.
Therefore both these time periods should not be taken into account when applying the above rules. As per the guidance, any objective inability to travel during the period from June 15 2020 until November 9 2020 shall be examined based on the facts of each case.
Individual tax residency status
The habitual abode, being decisive for the determination of an individual’s tax residency status, is considered to be in the country where the individual is staying on a regular basis.
The habitual abode refers to the frequency, duration and regularity of the stay, which is part of the defined routine of the individual. This well-established routine of the individual shall not be affected by the extreme conditions created by the COVID-19 pandemic, in case the individual stayed in another country.
In addition, days spent in Greece during the aforementioned period due to travel restrictions or as a measure of personal protection and security, shall not be added to the 183 days threshold, which is the presumptive period for an individual to be considered a Greek tax resident.
For individuals teleworking during the above periods (i.e. being physically present in Greece and not in the country where they are employed), their foreign tax residence status will not be impacted insofar as teleworking was rendered from Greece due to the exceptional circumstances and there is evidence that the employer has an office at the individual’s disposal being located in the foreign country where the employee used to provide the services.
As regards the ‘tie-breaker’ rule included in tax treaties, the guidance clarifies that the habitual abode shall not be affected by the fact that a non-Greek tax resident individual spent the above period in Greece or if a Greek tax resident individual was forced to stay outside of Greece during this period, since such a change is temporary.
Corporation tax residency status (place of effective management)
The place of effective management of a corporation, being decisive for the determination of its tax residency status, shall not be affected by the fact that executives/personnel making its key management and commercial decisions are temporarily located in a county other than the one where the corporation’s registered offices are.
This is applicable, provided that such change is of a temporary nature and is due to exceptional circumstances. Corporations should maintain a record of facts and circumstances to substantiate the force majeure grounds justifying their presence in a different country.
Permanent establishment rules
A foreign business shall not be deemed as maintaining a permanent establishment in Greece solely because one or more of its employees were located in the country, carrying out employment duties from there (i.e. at home), due to the COVID-19-related measures.
A fixed place cannot be of a purely temporary nature, but needs a degree of permanency. For example, the employee’s home shall constitute a fixed place only if the employee uses the home on a permanent basis, and the employer has specifically requested the use of the home by the employee for the provision of their services.
Teleworking would not lend itself to the existence of a permanent establishment, insofar teleworking services were rendered from Greece due to the exceptional circumstances and there is evidence that the employer has an office at the individual’s disposal which is located in the foreign country and through which the services are provided. However, if teleworking is to become the new norm as the provision of the employment, this could give rise to the existence of a permanent establishment in Greece.
Likewise, an agency permanent establishment is not deemed to exist in Greece solely because an agent is concluding contracts in Greece on behalf of the foreign business, provided that said person did not habitually conclude contracts on its behalf in Greece before the pandemic.
Lastly, a construction site is not be regarded as ceasing to exist when work is temporarily interrupted due to the restrictions, but the relevant period shall be included in the calculation of the time thresholds for the construction of a permanent establishment.
In conclusion, the Independent Authority for Public Revenue prudently opted to address the Greek tax treatment on matters that could be triggered due to the COVID-19 measures, by providing clarity and certainty at least for the periods covered by the guidance.
However, the period from June 15 2020 until November 9 2020, as well as periods after May 14 2021 could also be taken into account as periods where the above rules should not apply. Although during these periods there might not be an objective inability to travel, individuals and businesses are still concerned about moving their physical presence from, or to, Greece.
The Independent Authority for Public Revenue has clarified that companies that remained closed during the pandemic are still entitled to compute annual tax depreciation on assets (although the assets have not been put into operation).
In this regard, it could be further clarified whether companies not being able to derive business income during 2020 and 2021, should retain their exemption status under the Greek special real estate tax rules.
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