On July 20, the Greek government brought for elaboration at the Parliament its bill implementing the EU Council Directive 2016/881.
A very important provision is the one adopting paragraph 3 of Art. 1 of the directive (Art. 4 of the bill, adding paragraph 8 to Art. 16 of Law 4170/2013, concerning the administrative cooperation in the field of taxation). However, the current Greek wording reflects neither the purpose nor the wording of the provision of the directive.
Specifically, instead of reading: ‘’Notwithstanding paragraphs 1 to 6 (these are the paragraphs corresponding to paragraphs 1-4 of the 2011/16 directive), information communicated between Member States pursuant to Art. 9AA (the Greek law equivalent to Art. 8aa of the directive) shall be used for the purposes of assessing high-level transfer pricing risks and other risks related to base erosion and profit shifting, including assessing the risk of non-compliance by members of the MNE Group with applicable transfer pricing rules, and where appropriate for economic and statistical analysis. Transfer pricing adjustments by the tax authorities of the receiving Member State shall not be based on the information exchanged pursuant to Art. 9AA. Notwithstanding the above, there is no prohibition on using the information communicated as a basis for making further enquiries into the MNE Group’s transfer pricing arrangements or into other tax matters in the course of a tax audit and, as a result, appropriate adjustments to the taxable income of a Constituent entity may be made”,
It reads as follows:
“Save for paragraphs 1 to 6, the information communicated between Member States pursuant to Art. 9AA shall be used for the purposes of a high- risk assessment in relation to transfer prices and other risks in relation to base erosion and profit shifting, including assessing the risk of non-compliance by members of the MNE Group with the applicable transfer pricing rules, and where appropriate for the purposes of economic and statistical analysis. Notwithstanding the above, there is no prohibition on using the information above as a basis for making further enquiries into the MNE Group’s transfer pricing arrangements or into other tax matters in the course of a tax audit and, as a result, appropriate adjustments to the taxable income of a Constituent Entity may be made”.
This wording is in clear breach not only with the above wording of the directive, but also with its preamble, which in paragraph 17 states that: “In implementing this Directive, Member States should use the 2015 Final Report on Action 13 of the OECD/G20 Base Erosion and Profit Shifting Project, developed by the OECD, as a source of illustration or interpretation for this Directive and in order to ensure consistency of application across Member States”.
Paragraph 25 of the OECD report on Action 13 reads as follows: “ The Country-by-Country Report will be helpful for high-level transfer pricing risk assessment purposes. It may also be used by tax administrations in evaluating other BEPS related risks and where appropriate for economic and statistical analysis. However, the information in the Country-by-Country Report should not be used as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional and a full comparability analysis. The information in the Country-by-Country Report on its own does not constitute conclusive evidence that transfer prices are or are not appropriate. It should not be used by tax administrations to propose transfer pricing adjustments based on a global formulary apportionment of income.”
I’m afraid that the bill in its current version leaves room to the Greek tax administration to use the CBCR as a basis for transfer pricing adjustments and not as a high-level risk assessment. It is therefore necessary that the wording of Art. 4 of the bill to be amended in order to fully reflect the purpose of the CbCR and the wording of the directive.
One more point, which is relevant for domestic subsidiaries and permanent establishments of non-EU MNEs is that the bill requires that the reporting entity notification is made to the Greek tax authorities by December 31, 2017 (for those entities whose fiscal year ended December 31, 2016). This is so, although Greece has not yet signed any Competent Authority CBCR Agreement. I anticipate that this will create huge difficulties for non-EU MNEs that do not have another option for a surrogate parent entity filing in another EU country in which it is easier to manage the whole process and Greece does not manage to conclude before year end a bilateral CbCR agreement with the ultimate parent entity’s country. Considering that Greece is one of the last countries to adopt the CbCR directive and that it has not in place yet any agreement for the activation of CbCR exchanges with third countries, it would be appropriate to make use of the option provided by the directive to oblige the domestic constituent entity of the non-EU MNE group to make the CbCR filing to the Greek authorities itself only for reporting fiscal years commencing on or after 1 January 2017. Also it would be good if the reporting entity notification for the fiscal year commencing in 2016 had been postponed to the filing due date for the FY 2017 tax return (same as Germany did).
As far as other requirements and failure consequences are concerned, in line with the directive the bill introduces the CbCR requirement for MNE groups whose total consolidated group revenue amounted in the fiscal year preceding the reporting fiscal year to Euro 750 mil or in the local currency equivalent amount translated based on a January 2015 exchange rate.
Failure to submit proper CbCR is sanctioned with monetary penalty (apart from the consequence of the unfavorable risk assessment increasing the probability of a full scope tax audit). Namely the penalty amounts to Euro 10,000 for non-filing and to Euro 5,000 for late or inaccurate filing.