The challenges of fostering development in the modern world amidst the Covid-19 crisis are significant. Tax certainty has always played a critical role in attracting investment but it now appears indispensable.
In recent years, Greece has been making strategic efforts to update and streamline its tax regime in order to attract much needed investment. Among these, the recent revision of the Law 89 cost plus regime has brought to the table a shared-services regime offering that may prove particularly useful for multinational groups.
Law 89 provides the first type of quasi tax ruling that Greece offers, set aside APAs, allowing the advance pricing of intragroup services. It further allows full tax deductibility of expenses to the extent that revenues, which must originate from associated companies, are set at a pre-agreed markup thereon (not inferior to 5%). In effect, the taxable basis is fixed and the risk of challenge by tax auditors is limited.
The overall tax environment and government processes must reflect tax certainty and a more business welcoming climate
Until 2019, eligible services spanned from accounting and consulting to marketing and advertising or R&D. Experience shows that in the 15 years of its existence as a cost plus regime, Law 89 has not been pivotal in attracting shared services centers into the country.
The amendments of 2019 are twofold. New activities have been added, and grants have been offered.
New activities include software development, IT support, data management and storage, HR management and training, supply chain management, and computer-based call centers. Greece-based talent in IT services is a non-negligible asset for the deployment of relevant investment.
Straightforward cash subsidies are also available for new types of activities and additional job positions; a measure to boost the creation of new jobs, well reasoned.
Amendments have clarified that no effective management is created out of the eligible activities in Greece (a rather redundant addition, some may think, but nice to have).
Set aside the abnormal conditions of the pandemic, incentives alone and a refreshed special tax regime, such as cost plus, cannot themselves attract investment. The overall tax environment and government processes must also reflect tax certainty and, in effect, a more business welcoming climate.
Recent examples include the alignment of the Income Tax Code with EU and international law, the modernization of Greek Accounting Standards with the parallel adoption of the IFRS, as well as legislation ensuring that no tax or penalties will be due in case a taxpayer has been acting on the basis of administrative guidelines—last but not least, the Supreme Court’s series of decisions reinstating correct interpretations of the law, such as the highly praised decision that ruled for the abolition of the five-year statute of limitations’ legislative extensions.
Had it not been for all the above, the Law 89 cost-plus regime would be a nice theoretical option, as it has been for many over the years. It is a great challenge to make something of it now that the perimeter of eligible activities has become much more meaningful; as ironic as it may sound in these times, the momentum looks great.