he eminent imposition of CGT (Capital Gains Tax) in Greece
Greece’s Independent Authority for Public Revenue (IAPR) issued a circular on 31 August 2021 (no. Ε.2171/2021, published on 2 September) clarifying when capital gains from a sale of securities (by either individuals or legal entities) should be taxed when the income depends on the fulfilment of a condition precedent. In addition, the circular addresses certain specific issues related to the application of article 42 of the Greek Income Tax Code (GITC), which explains how to determine the capital gains from the transfer of securities, as interpreted by Circular POL. 1032/2015.
In the new circular, the IAPR clarifies that capital gains derived by individuals and legal entities from the transfer of securities for an additional deferred consideration whose payment is conditional upon the occurrence of a future and uncertain event (i.e., the payment is subject to the fulfilment of a condition precedent) is taxable in the year when the condition is actually fulfilled and, thus, if and when the beneficiary has the right to collect the income. In particular, with respect to individual sellers, the relevant capital gains will have to be re-calculated and the additional income will have to be duly reported in the fiscal year (FY) when it was generated, i.e., when the condition precedent was fulfilled.
Additionally, the circular clarifies the following regarding the determination of an individual’s capital gains derived from the transfer of non-listed securities issued by companies that use the double-entry booking method:
- Both the acquisition and the purchase price are determined by taking into consideration the issuer’s equity as reported in the issuer’s accounting books for each FY (accounting base). However, in case the issuer’s equity is negative in the FY when the transferee acquires the shares, the acquisition price will be considered to be zero.
- · With respect to a free grant of shares to the shareholders of a company as a result of the company’s share capital being increased through the capitalization of a share premium reserve, the nominal value of the shares will be treated as their acquisition price for purposes of determining their average purchase price in case of a subsequent transfer.
- · Notwithstanding the above, assuming that the free grant of shares follows a share capital increase via the capitalization of a reserve equivalent to the capital gains arising from a revaluation of the company’s fixed assets, or even representing the non-taxed profits of the company (i.e., in cases where the shareholders have not actually paid cash), the acquisition price of the shares will be considered to be zero.
- · In cases where shares are transferred in a corporate reorganization (e.g., merger, spin-off) and the transferor-shareholder acquires the shares in consideration for the transaction, the market value of the shares at the time the transaction is completed will be taken into consideration to determine their average acquisition price. However, if the application of article 54 of the GITC has been elected (Merger Directive provisions), the average acquisition price of the transferred shares will be based on the book value of the shares immediately before the transaction.
- · When the sale of securities described in article 42 paragraph 1 of the GITC is carried out in the context of an auction, the auction price will be considered the acquisition price of the securities. (These securities include (i) non-listed shares, (ii) listed shares and securities provided that the transferor has at least 0.5% participation in the issuer’s equity, (iii) parts in partnerships, (iv) government bonds and notes or corporate bonds, and (v) derivatives.)
- · Finally, the circular reiterates that a share capital decrease resulting from a shareholder’s/partner’s exit from a company and the subsequent adjustment to the participation of the remaining shareholders/partners does not constitute a transfer of shares.