Taxing authority and tax law

Tax authorities: The Ministry of Development and the Ministry of Finance

Two separate sets of law and authorities regulate the Transfer Pricing Documentation requirements. The Ministry of Development has introduced Transfer Pricing Documentation Rules by Law 3728/18-12-2008 and the Ministerial Decision Α2- 8092/31-12-2008, applicable for the fiscal years 2008 and onwards. Within the aforementioned legislative framework, the Ministry of Development is the auditing authority of the TP rules, while in case of identification of TP infringements the case is referred to the supervising tax authorities for the application of the relevant provisions of the tax legislation and the imposition of the relevant tax sanctions.

Relevant regulations and rulings

In addition, Transfer Pricing Documentation rules were introduced also by Ministry of Finance (L.3775/2009, applying for fiscal years 2010 and onwards). No Ministerial Decision has been issued yet to this end.

OECD guidelines treatment

The aforementioned legislative framework confirms the applicability of the OECD Transfer Pricing Guidelines.

The Ministry of Development and the Ministry of Finance, the two Greek supervising authorities of intra-group transactions, recognize the OECD guidelines and consider their transfer pricing laws and decisions to be consistent with OECD guidelines. However, due to the limited time period since the Greek TP Law was approved by the Greek Parliament and applied in the Greek market, the tax audit treatment of transfer pricing cases cannot be ascertained, nor is it known whether the tax authorities will follow the uniform application of rules and methods.

Priorities/pricing methods

The tax authorities follow the OECD Transfer Pricing Guidelines. All three of the traditional transactional methods (CUP, Resale Price and Cost Plus) can be applied while the use of profit-based methods is possible where substantiated. In particular, other (non-traditional) transfer pricing methods such as the TNMM and the Transactional Profit Split Method can be used only in the cases where the use of the above traditional transfer pricing methods are considered ineffective, provided that a detailed justification is included in the documentation files.

Transfer pricing penalties

In accordance with the Ministry of Development TP Documentation Rules, a penalty equal to 10% of the value of the transactions for which no file has been submitted to the auditing authorities or for which the lists of intra-group transactions have not been submitted timely is imposed. The Ministry of Finance also imposes a penalty equal to 20% of the value of the transactions (with the possibility of reducing it to one-third), in case no file is submitted to the tax authorities or the submitted data are insufficient. Either the case is initially examined by the Ministry of Development or the Ministry of Finance, if an infringement of the arm’s length principle is assessed from the audit report, the supervising tax authorities impose the relevant tax sanctions, i.e., any price difference (over-or under-invoiced amount) deemed to be an accrued profit for the respective enterprise will be included in its actual profits and be taxed accordingly. Additionally, a penalty equal to 20% of the price difference assessed will be imposed, regardless of any other penalties applicable for inaccurate tax return filings. In addition, if the case is examined by the Ministry of Development, a fine of €5,000 and penal sanctions are triggered.

Penalty relief

The Ministry of Development provides that the decision of the Head of the Market Supervision Authority is given to the company under audit within 30 days of its issuance. The above decision may be challenged by means of recourse to the Ministry of Development within five working days of its receipt by the audited company. The Minister of Development should decide within 10 working days of the filing of the recourse. In case of rejection of the recourse by the Minister, the audited company is entitled to appeal against the negative decision by filing recourse to the competent Administrative First Instance Court within 60 days of its formal notification of the company. The recourse to the Administrative Court is legally acceptable provided that 20% of the fines and penalties assessed to the company is paid.

The Ministry of Finance provides that the penalty equal to 20% of the value of the transactions for the non-submission of file may be reduced to one third.

Documentation requirements

For the purposes of assessing the compliance of the liable companies with the arm’s length principle, the following documentation files should be available upon request of the supervising authorities of either the Ministry of Development or the Ministry of Finance within 30 days, from the notification of such request.

With respect to groups of companies with a Greek parent company, the Master Documentation File should include the following information:

Group-related information:

• The organizational, legal and operational structure of the Group, including any permanent establishments and interests in partnerships, as well as general background information of the Group’s industry and the financial data relating to it
• General description of the Group activity, the business strategy, including changes of the business strategy as compared to the previous financial year
• General description and implementation of the Intra-Group transfer pricing policy, if applicable.
• General presentation of transactions concluded between the Greek parent company and its affiliated companies (Greek or foreign), as well as of the transactions among the affiliated companies, if one of these is Greek, namely:
  • Nature of transactions (e.g., sale of goods, provision of services, financial transactions)
  • Invoices’ flows
  • Amounts of transaction flows

The description of the affiliated companies or of their permanent establishments that enter into the above transactions shall include:

• The scope of their activities, the years of operations, the annual turnover, the number of employed personnel, etc.
• General description of functions and risks undertaken by the affiliated companies, including the changes incurred to this end as compared to the previous year.

In addition, a general description of the tangible assets used by the Group for the purposes of carrying out the above functions:

• The ownership of intangibles (e.g., patents, trademarks, brand names, know-how) and royalties paid or received.
• List of any Advance Pricing Agreements concluded by the Group companies with foreign tax authorities.

Company-related information:

• A detailed presentation of the transactions with associated companies for which the obligation documentation exists:
  • Nature of transactions (sale of goods, provision of services and financial transactions)
  • Invoice flows
  • Amounts of transaction flows
• Comparative analysis:
  • Characteristics of goods and services
  • Functional analysis (e.g., functions, risks, used fixed assets)
  • Contractual terms
  • Economic circumstances
  • Specific business strategies
• Description of the transfer pricing method implemented from among those specified in the OECD Transfer Pricing Guidelines as well as reasoning on the selection criteria thereof
• Relevant information on internal and/or external comparables, if available
• Description of other data or circumstances that are deemed to be relevant

With respect to groups of companies with a foreign parent company as well as foreign companies operating with any type and legal form in Greece, the Greek Documentation File should include the same information as listed above for Greek parent companies, with the following exceptions:

Group-related information for companies with a foreign parent should include:

• A general presentation of transactions concluded between the Greek company (or the Greek branch) and the affiliated companies (Greek or foreign), namely:
  • Nature of transactions (e.g., sale of goods, provision of services, financial transactions)
  • Invoices’ flows
  • Amounts of transaction flows

Company-related information for companies with a foreign parent should include:

Description of the affiliated companies or of their permanent establishments that enter into those transactions or agreements:

• Description of the transfer pricing method implemented from among those specified in the OECD Transfer Pricing Guidelines as well as reasoning on the selection criteria thereof
• Relevant information on internal and/or external comparables, if available
• Description of other data or circumstances that are deemed to be relevant

Documentation deadlines

The liable companies should submit annually to the Ministry of Development, within four months and 15 days of their fiscal year-end, a list with the details of their intra-group transactions, including especially the number and the value thereof.

The above-mentioned documentation files should be made available upon request from the supervising authorities of the Ministry of Development and within 30 days from the notification of such request.

In the context of a tax audit performed by the Ministry of Finance, the documentation data in accordance with the law of the Ministry of Finance should be made available to the tax authorities within reasonable time of no less than 30 days.

Statute of limitations on transfer pricing assessments

Documentation files must be kept by the liable companies for a period equal to the prescription period of the State’s right to impose tax (statute of limitations), as the latter is specified by the provisions of tax legislation.

Return disclosures/related-party disclosures

The liable companies disclose their intra-group transactions through the submission of a list to the Ministry of Development, annually. In particular, the list should be filed within four months and 15 days from their fiscal year-end (as stated above in “Documentation deadlines”).

Audit risk/transfer pricing scrutiny

Transfer pricing audits are expected to become more frequent and intensive. It is likely that the tax authorities will try to increase revenue through the imposition of penalties on companies that are not complying with transfer pricing requirements.

APA opportunity

Currently, the use of APAs is not permitted. It is expected that the introduction of APAs will be discussed in the near future. However, a unilateral APA procedure has been introduced that addresses intra-group service centers operating for the exclusive benefit of affiliates abroad. Under this proposal, after filing an application with the tax authorities, the entities may be taxed on a cost plus basis, using an agreed markup, for a period of up to five years.

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