a summary of the article of Alexandros Karakitis at the
newspaper KATHIMERINI of 31-7-2016

The recent decision of the CJEU (Court of Justice of the EU) of 13-7-2016, in C-18/15, Brisal, provides an excellent opportunity to test the conformity of the Greek withholding tax rules, regarding cross-border payments, with EU law.

The article starts with a brief outline of the background of the case examined by the Court and highlights that, according to the CJEU case law, the difference in treatment, such as the imposition of withholding tax to the gross income of non-resident service providers only, can be justified by an overriding reason in the general interest, such as the need to ensure the effective collection of tax, but only to the extent that the specific measure applied does not go beyond what is necessary to attain the objective pursued.

After making a brief reference of how the decision remains important for cross-border loans, other than those extended by banks, which in Greece do not attract withholding tax, as well as for royalties, the article focuses on the treatment of consulting, technical and management services. According to Greek tax law, foreign legal entities providing such services to businesses in Greece may opt to be taxed in the same way as the tax resident persons and credit the 20% tax withheld against the corporate income tax due (in Greece). The relevant guidelines of the tax administration correctly state that when the services are rendered by a foreign legal entity that does not have a permanent establishment in Greece, they are not subject to withholding tax. However, they go too far in that they stipulate that in every case where the related services are rendered through a permanent establishment of a foreign entity in Greece and the service recipient is a domestic business, a withholding tax obligation is triggered and that the option provided by the law on the way of taxation shall not apply. Instead, the withholding tax shall always be credited against the corporate income tax due in Greece.

The article criticizes this administrative ruling in the light of the EU freedom of establishment and suggests that the obligation to impose withholding tax on the payments to foreign service providers, contrary to similar payments to resident beneficiaries being excluded, be limited only when the invoicing is done with a foreign tax identification number, despite of the activity having created a taxable permanent establishment in Greece. It is also suggested that the guidelines be in thus far revoked and replaced with detailed guidelines about when enterprises should consider that the foreign service provider should have registered a permanent establishment prior to the invoicing of the service to them, in order to know when to apply withholding tax, namely,  when the service activities generate a permanent establishment but are invoiced with a foreign tax number.