Greece New tax framework on corporate transformations - L.5162/2024

New tax law on corporate transformations has been voted, aligned with the legal framework on corporate transformations (L.4601/2019) and the EU Tax Merger Directive.

Corporate transformations

Domestic: Mergers, demergers, partial demergers, spin offs, exchanges of shares, conversions of legal form

Cross border: EU cross border transformations in alignment with the EU Tax Merger Directive as well as spins off & exchanges of shares involving non-EU entities

No requirements and restrictions with respect to either the entities transformed or the resulting entity (legal form, min share capital etc.).

Effective for initial or revised merger/demerger plans or corporate conversion resolutions published following the enactment of the law, i.e., 05.12.2024.

Abolition of the former tax framework on corporate transformations:

1. L.D.1297/1972
2. Art. 1-4 of L.2166/1993
3. L.2578/1998 on cross border mergers
4. Art. 52 -56 of L.4172/2013
5. Art. 61 of L.4438/2016

Key insights

At the level of the shareholder / contributing company

Tax neutrality under conditions

• The shares acquired by the shareholder (legal entity or individual) as a result of a merger, demerger (full or partial) & conversion or by the contributing company as a result of a spin off are recognized for tax purposes at their fair market value, on the condition that they are not transferred within 2 years as of the transformation.

Per the explanatory memo, this does not constitute a deferral but a permanent tax exemption subject to the 2-years retention period condition.

• The shareholder of the contributing company or the company undergoing conversion is not subject to tax on the goodwill arising from the transformation, except for the portion that corresponds, proportionally, to any cash payment.

At the level of the receiving entity

• The merger, demerger (full, partial or spin off), or conversion does not increase the taxable value of the assets transferred to the receiving company or, in the case of a conversion, those retained by the company under its new legal form.

• The goodwill arising from the merger, demerger, or conversion does not result in a tax liability for the receiving company or, in the case of a conversion, for the company under its new legal form.

The receiving company

• Applies depreciation on the assets based on their respective tax values as recorded by the contributing company, in accordance with the rules that would have applied to the contributing company had the transformation not occurred.

• May carry forward the tax losses of the contributing company under the same conditions that would have applied to the contributing  company had the transformation not taken place.

• May carry forward the tax reserves and provisions established by the contributing company, along with the tax exemptions and conditions that would have applied to the contributing company had the transformation not taken place.

Other tax exemptions

• All corporate transformations enjoy unconditionally exemptions from taxes such as Real Estate Transfer Tax, Capital Concentration Tax & Digital Transaction Tax.
• Standard VAT rules apply.

Process simplifications

• No Real Estate Transfer Tax returns submission required. ENFIA certificate is required.

The above reflect the existing simplifications of art. 3 of L.2166/1993 and art. 9 of L.4935/2022.

Anti abuse rule

• A single targeted anti-tax avoidance rule applicable to all tax exemptions under the new tax framework.

Taking a closer look

• Broader definition of the “branch of activity” required for partial demergers and spin-offs: The entirety of the assets and liabilities of a division of a company or the specific/ designated assets along with the corresponding liabilities, that constitute, from an organizational perspective, an autonomous operation — that is, a unit capable of functioning independently — regardless of whether it generates income from its operations prior to the transformation.“

Apart from the branches of activity at early stages of development, it remains to be clarified whether a self-used asset or a back-office function could qualify as a branch of activity. As a general comment, the above definition is broader than the one included in the EU Tax Merger Directive.

• Real Estate Investment Companies (REICs) governed by L.2778/ 1999 may apply the provisions of the new tax framework for corporate transformations, after the abolition of L.2166/1993 (which was the only applicable tax framework for REICs transformations).

• Valuation requirements are stipulated by L.4601/2019 and the corporate law framework.

• The transformations carried out under the repealed provisions continue to be governed by these provisions regarding the terms, conditions, and tax benefits that were provided therein.

• Specific rules for contribution of a sole proprietorship or join venture.

• Article 11 of the Tax Merger Directive concerning tax-transparent companies is incorporated into national legislation, whereby the tax liability for income tax lies with the entities (shareholders/partners) rather than the legal entity itself.

• Tax rules on cross-border transformations are in alignment with the EU Tax Merger Directive e.g., either tax exemption or credit of notional tax that would have been paid abroad in the case where the assets contributed include assets located in a third Member State (i.e., beyond Greece and the Member State of establishment of the contributing or receiving company, as applicable).

Other important changes

• The participation exemption has been extended to cover capital gains and dividends derived from qualifying participations in non-EU companies, provided these companies are not established in non-cooperative jurisdictions (applicable as of tax year 2025).

• Losses from the transfer of titles qualifying under the participation exemption can be deducted after January 1, 2025, if:

1. They have been valuated by December 31, 2023, and recorded in the company’s accounting books or in its audited financial statements.
2. They become final by December 31, 2026.
   
   The lower amount between the valuated one and the final one is tax deductible.
   
   
3. New rule under which the new company resulting from the transformation of companies or the contribution of a sole proprietorship carried out in accordance with L.4935/2022 can utilize the losses of the transformed companies or the contributed sole proprietorship, under the same conditions that would have applied  if the transformation had not taken place.

A specific income tax exemption applicable in the past with respect to the benefit deriving from debt write offs (art. 62, L.4389/2016)  is reinstated and included in the Income Tax Code (L.4172/2013). Thus, the benefit of a legal entity stemming from a partial or total debt forgiveness by credit or financial institutions will be exempt from corporate income tax, subject to the conditions outlined in the respective provision (applicable for taxes due as of 1^st January 2024).