Greece vs S.p.A. ST. MEDICAL, May 2020, Supreme Administrative Court, Case No A 984/2020

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Following an audit the tax authorities issued a tax assessment and a substantial fine to S.p.A. ST. MEDICAL related to costs deducted in FY 2009, which the tax authorities claimed were partially fictitious.

“the Economic Police carried out, on 22.10.2012, a tax audit of the appellant, which, during the contested management period (1.1.-31.12.2009), had as its business the wholesale trade in medical and surgical equipment, tools and similar items, keeping, for the purpose of monitoring its business, books and records of category C of the Commercial Code. During the audit carried out, in addition to the books kept by the appellant, various items of information found at its registered office (sales invoices, service receipts, delivery notes, delivery notes, exclusive distribution contracts between the appellant and foreign companies, with attached price lists of the products to be distributed, etc.) were seized for further processing, including items issued by the limited liability company ‘Praxis Company of Medical Equipment Ltd’ (‘Praxis’), established in Cyprus, the object of whose activity is either Following the completion of the processing of that information, the audit report of 12.3.2014 of the Financial Police was drawn up, which included the following findings: (a) the appellant company had Praxis as its main supplier, of which it was, in essence, the sole customer; (b) from 2008 onwards, the Cyprus company had as its sole shareholder the company ‘Poren Ventures Limited’, a company incorporated under the laws of the British Virgin Islands, with capital consisting of 50. 000 shares, of which 49 999 shares were held by the sole partner and manager of the appellant; c) the Cypriot company operated, in the context of triangular transactions, as an intermediary between suppliers – foreign companies (Alphatec Spine, Misonix INV, PFM, Sorin Group and Sorin Biomedica Cardio S.R.L. ) and the appellant, despite the fact that the latter was able to obtain the same products directly from foreign companies, with some of which it had concluded exclusive distribution agreements (Alphatec Spine, Misonix INV and PFM), (d) in the context of the transactions between them, the Cypriot company issued invoices to the appellant, in which it indicated purchase prices for the products supplied which were, on average, 241% higher than the prices at which the same products were priced by the foreign companies (see Case C-158/99, paragraph 1). See the relevant comparison tables, p. 27-56 and 96-108 of the audit report), and (e) the goods supplied were sent by the foreign firms directly to the appellant, which then sold them to public hospitals in the country at the high prices at which they had been supplied by the Cypriot company, thereby technically inflating the cost of their purchase (by recording the invoices issued in that regard in its books) and reducing its profit accordingly, to the detriment of the interests of the Greek State. ”

The assessment and fine was later upheld by the Administrative Court and the Administrative Court of Appeal.

Not satisfied with this result, S.p.A. ST. MEDICAL filed an appeal with the Supreme Administrative Court.

Judgement of the Court

The Court partially allowed the appeal of S.p.A. ST. MEDICAL and remanded the case back to the tax authorities in order to examine whether instead the conditions for imposition of a penalty provided for in Article 39(7) of the Income Tax Code were fulfilled.


transactions in which the value shown on the tax documents is higher than the value which could have been agreed under the prevailing market conditions do not, in principle, constitute a case of partial deception, provided that that value corresponds, as stated above, to the price actually agreed between the parties.

“In the view of the Court of First Instance, such is the nature of the overpricing of the products sold by the Cypriot company, resulting, in its view, from the large discrepancy between the purchase price and the selling price, from the close economic dependence of the two companies and from the general circumstances in which those transactions took place. However, in the light of what has already been said, that finding is incorrect, in the light of the ground of appeal in the main proceedings, as set out in the appeal of 24.10.2008 C 44/12 2019, because, since the value entered on the invoices issued for the transactions at issue was not less than the price actually agreed between the two undertakings, the fact that that value was, according to the tax authority’s assessment, unreasonably higher than that which would have been agreed if the transaction had been carried out without the intervention of the Cypriot company, is not sufficient in law for the tax documents issued in that regard to be classified as partially false. 4 of Law No. 2523/1997, the transactions at issue, which, due to their cross-border nature and the relationship that, at the relevant time, linked the appellant to the Cypriot company, due to the participation of the sole partner and manager of the former in the capital of the latter, fall exclusively within the scope of Article 39 of the Tax Code, so that it is not legally possible, and for this reason, to impose a fine under the Tax Code (see also Article 39 of the Tax Code), can be classified as partially fictitious”

“For these reasons, the act challenged in the appellant’s appeal (172/29.4.2015 decision of the Head of the Athens IZ Tax Office) unlawfully imposed a fine under the C.B.S. for receiving partially fictitious invoices, while the appeal brought against that act was implicitly dismissed unlawfully for the same reason. Consequently, the claims of the defendant authority to the contrary (see the memorandum of 21.10.2019 of the AADC), the validity of which is not supported, as the court of first instance wrongly considered, by the explanatory memorandum of Law No. 2523/1997, from which it is clear that the regulation introduced by paragraph 4 of Article 19 attempted to remove the interpretative issues that had arisen in the past with regard to the treatment of tax items with a value higher than the real value, due to the absence of a corresponding regulation in the previous provision of case g of paragraph 1 of Article 31(1) of Law No. 2523/1997, which was not in force at the time. 1591/1986 (A’ 50), but not the inclusion of cases of overcharging in the provisions of the tax legislation relating to fictitiousness.”

“Since, in the light of the foregoing, the application must be granted, the first ground of appeal being upheld, and the judgment under appeal must be set aside, the other grounds of appeal being rendered devoid of purpose. Furthermore, since the case does not in fact require any further clarification, there is no need to refer it back to the Court of Appeal, but it should be retained by this Court, which, in accordance with Article 57(2) of Decree-Law No 18/1989, which, for the reasons set out in the preceding paragraph, hears the appeal, upholds it and annuls the acts challenged by it. Further, taking into account that the facts of the case, as accepted by the judgment under appeal and not disputed by the parties, show that the transactions between the appellant and the Cypriot company fall, in principle, within the scope of the following provisions, within the scope of the provisions on overcharging in the income tax legislation, the Court considers that the case should be referred back to the administration in order to examine whether the conditions for the imposition of the penalty provided for in Article 39(7) of the Income Tax Code are fulfilled. TAX CODE, as in force at the material time, and, if so, to impose the fine within one year of the notification of this judgment to the Commission (see Article 36(1) of Regulation No 40/94). 2(c) of the Tax Code (Law No 4174/2013, A 170), according to which the period for the tax administration to take the steps required to comply with a court decision begins on the day following the date on which the relevant decision came to its knowledge].”

“Since, in the light of the circumstances, the Court considers that the State should be exempted from the costs of the proceedings in the appeal, pursuant to Article 275(1)(b) of the EC Treaty. 1 of the Code of Administrative Procedure (Law No 2717/1999, A 97).”

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