Greek tax on transactions with Bulgaria

Greek tax on transactions with Bulgaria

KPMG's Tax News outline and highlight legislative changes and trends in the area of tax


The fourth issue in 2015 comments on the introduction of a Greek tax on transactions with Bulgarian persons as well as on the effects that might arise in this regard.


On 21 March 2015, the State Gazette of the
Hellenic Republic promulgated amendments and supplements to the Greek Income Tax
Code which introduced new rules for deducting expenses for tax purposes.

Pursuant to the new rules, all expenses
paid by Greek legal entities to individuals and legal entities who are tax
residents of countries with preferential tax regimes as at the date of issue of
the invoice or as at the date of the transaction would be disallowed for tax
purposes. The list of countries includes three Member States of the European
Union, namely Bulgaria, Ireland and Cyprus.

The above expenses will be tax deductible
for the Greek payer if they are taxed with a “withholding tax” at the rate of
26%. The tax may be reimbursed within a period of three months after the
execution of the transaction, provided that the Greek payer of the income
presents proof before the Greek tax authorities that the transaction is an
ordinary one and is executed at arm’s length.

Which transactions fall under the new rules?

The practical application of the new rules
will be regulated by a decree of the Greek Minister of Finance. A draft version
of the decree was issued on 23 April 2015 for public consultation. 

The draft decree limits the application of
the new rules to transactions for which the payer of the income is not in a
position to prove the reality of the respective transaction. Transactions
carried out between Greek persons remain outside of the scope of the rules. In
addition, transactions between related parties will not be subject to a 26% tax
if they are (i) carried at arm’s length, and (ii) transfer pricing documentation
is prepared for them in compliance with the Greek regulations.

Furthermore, as per the published draft
version of the decree, the transactions will be exempt from the 26% tax in the
cases where the payer of the income files an electronic declaration within 10
days after their execution declaring that: 

  • the transaction falls within the scope of the exceptions explicitly indicated in the decree (for example, import of electricity, water or gas, transactions with entities listed on a stock exchange, transactions below a certain threshold, transaction with goods traded on a commodity exchange, and others) or
  • the transaction does not fall within the exceptions but the payer of the income has a specific set of documents (written contract, balance sheets of the foreign entity, payment documents or a bank guarantee, and others). 

The circumstances and documents declared by the payer of the income are subject to review during a tax audit. 

Who will bear the tax burden?

The amendments to the Greek Income Tax Code provide for a “withholding tax” at a rate of 26%, whereas the draft version of the decree refers to this tax as a “tax subject to preliminary payment”. This change in the wording may aim to clarify the fact that the tax burden should be borne by the Greek payer of the income and not by the recipient, i.e. the tax should not be withheld from the income of the foreign recipient. 

What actions has Bulgaria undertaken? 

On 30 March 2015, the Bulgarian Minister of Finance referred the matter with regard to the amendments to the Greek tax legislation to Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs.

The position of Bulgaria expressed in the letter of the Bulgarian minister is that the tax regulations adopted by Greece are inconsistent with the European Union law and violate the fundamental principles embedded in the Treaty on the Functioning of the European Union. It is also stated that the introduction of a 26% withholding tax with regard to all transactions with Bulgaria, as well as with Ireland and Cyprus, represents a discriminatory measure that imposes restrictions to the trade, economic and financial relations between Bulgarian entities and their Greek counterparties.

The procedure of appeal includes an administrative and a court phase. The administrative phase could be expected to end with the issuance of a reasoned opinion of the European Commission within three months after each of the interested countries has been granted the option to present its considerations. It is not determined how long the court phase could take.

How can KPMG in Bulgaria help? 

Although the new rules do not seem to impose a tax burden on the Bulgarian recipients of the income, the tax burden could be transferred from the payer of the income (a Greek entity) to the recipient (a Bulgarian person) based on further commercial arrangements between the parties to the transactions.

The Tax team of KPMG in Bulgaria, on the basis of its specific knowledge and expertise, is in a position to provide assistance at each stage of planning and carrying out business with Greek counterparties. 



© 2022 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.



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