Kallithea,
16/01/2018
Decision
number: 417
HELLENIC
REPUBLIC
DISPUTE
RESOLUTION DIRECTORATE
SUB-DIRECTORATE
FOR REVIEW
DEPARTMENT
A1 OF REEXAMINATION
Address.
Address: 19 Aristogitonos
Address.
Code: 176 71 - Kallithea
Phone: 213
1604 534
FAX: 213
1604 567
DECISION
THE HEAD OF
THE DIRECTORATE FOR DISPUTE SETTLEMENT
Having
regard to:
1. 1:
α. 1. ARTICLE 63 OF ARTICLE 63 OF LAW NO.
4174/2013 (OFFICIAL GAZETTE NO. 170).
β. Article 11 of the D. ORG.A 1036960 EX 2017
Decision of the Governor of the SAI (Government Gazette 968 B'/22.03.2017) on
the "Organization of the Independent Public Revenue Authority (SAI)".
c. of
POL.1064/2017 Decision of the Governor of the Independent Public Revenue
Authority.
2.
POL.1069/4.3.2014 Circular of the General Secretariat of Public Revenue of the
Ministry of Finance.
3. D.E.D.
1126366 EX 2016/30.8.2016 (Government Gazette B' 2759/1.9.2016) Decision of the
Head of the Dispute Resolution Division "Provision of authorization to
sign".
4. The
appeal filed on 18/09/2017 and with the protocol number of the company with the
name " ", with the object of business " ", located in ,
South Achaia, on the streets and , with VAT number , against the following acts
of the Head of the D.O.Y A' Patras:
α. The Final Act of Corrective Determination of
Income Tax for the financial year 2012 (administrative period 01.01.2011 -
31.12.2011), which attributed to the company a difference in income tax
amounting to EUR 561.596,35, plus additional tax due to inaccuracy amounting to
EUR 673.915,62, i.e. a total amount of EUR 1.235.511,97.
β. Penalty Act No. /2017, Article 39§7 of Law
2238/1994, which imposed a fine of EUR 707.245,96.
5. The
views of the D.O.Y. A' Patras
6. The
recommendation of the designated official of the A1 department of our Office,
as reflected in the draft decision.
Brief
background
Following
the control order No. /2017 issued by the Head of D.O.Y. A' Patras, following
the Information Bulletin of the Special Secretariat of the S.D.O.E. No. -
SPECIAL D / DIVISION FOR CONTROL OF NATIONAL AND COMMUNITY EXPENDITURE AND
DEPOSURE AND DEBT CONTROL, an audit was carried out on the books and records of
the above company for the financial period 01/01/2011-31/12/2011, and it was
found that the intra-group purchases worth 5. 947.034,44 € that it had carried
out for mechanical and medical equipment from the Cypriot company
"................", were overpriced by 3.693.150,15 €, as calculated
according to the investigation of the Directorate of Controls, department of
special tax controls (D) and became known to the D.O.Y A' Patras with the
document no. DEL D /17.
Following
this finding in application of the provisions of Article 39 of Law No.
2238/1994 (K.F.E.) imposed the penalties provided for therefrom, namely, on the
one hand, the increase of the net profit for the financial year 2011 with the
amount of overcharging 3.693.150,15 €, which was added to them as an accounting
difference, and on the other hand, the imposition of an independent fine equal
to 20% of the amount of overcharging.
By the
present action, the applicant company seeks the upholding of the contested
decision and the annulment of the contested act, on the basis of the following
pleas in law:
1st plea in
law: Unlawful application of the provisions of Article 39 of Law No.
Application for annulment of the provisions of Article 39 of Law No 2238/1994
(C.F.R.), since the concept of 'associated enterprises' is not established -
Failure to discharge the burden of proof incumbent on the Tax Authority.
2nd plea in
law: Unlawful application of the provisions of Article 39 of Law No. Claim for
annulment of Article 39 of Law No 2238/1994 (C.F.R.), since the concept of
'profit' is not established.
Third plea
in law: Infringement of the effective exercise of the right to a prior hearing.
Fourth plea
in law: Completely unjustified or otherwise inadequately reasoned decision of
the tax authority - Manifest error in the methodology of the audit.
Fifth
ground of appeal: In the alternative, incorrect allocation of the accounting
difference to the amount of the alleged overcharging and not on the basis of
the amount of depreciation relating to the financial year in question.
In response
to the appeal filed on 18/09/2017, with the date of filing and the file number
of 18/09/2017, by the company with the name " ", with VAT number ,
which was filed in due time and after studying and evaluating all the documents
in the file and the grounds of the appeal, the following is hereby confirmed:
Because,
according to Article 39 of Law 2238/1994 "Overcharging and
undercharging"
1.[a] Where
sales of goods or provision of services are made between domestic enterprises
which are connected within the meaning of paragraph 3 on economic terms
different from those which would have been agreed between independent
enterprises, the profits which, without these terms, would have been realised by the enterprise but which were not realised because of the aforementioned terms, are deemed to
be the profit of that enterprise, with which its net profits are increased,
without affecting the validity of the books and records.
[α].
Paragraph 1 of Article 39 was inserted as replaced by paragraph a' of par. 13
of Article 11 of Act No. 3842/2010 (Government Gazette A' 58) and is in force
in accordance with paragraph 2 of Article 92 of the same law from the
publication of the law in the Government Gazette, i.e. 23.4.2010.
2. Where
between a domestic and a foreign enterprise which are related within the
meaning of paragraph 3, sales of goods or provision of services are carried out
on economic terms different from those which would have been agreed between
independent enterprises, the profits which, without these terms, would have
been realised by the domestic enterprise but which
were not realised due to the aforementioned terms,
shall be considered as profit of this enterprise, with which its net profits
shall be increased, without affecting the validity of the books and records of
the enterprise.
3. The
provisions of the preceding paragraphs shall apply to undertakings which are
linked by a direct or indirect relationship of substantial managerial or
financial dependence or control through participation in the capital or
management of one undertaking or through the participation of the same persons
in the capital or management of both undertakings.
4. The
difference in profits resulting from the provisions of paragraphs 1 and 2 shall
be added to the gross income of the undertaking resulting from its accounts, in
order that such income may be taken into account for the purpose of determining
taxes, duties and levies.
5. In order
to verify the application of paragraph 2 of this Article, the audited
enterprises shall be required to keep the price documentation of intra-group
transactions specified in the provisions of Article 39A of the Income Tax Code.
6. Where
the audit establishes that a case of application of the provisions of paragraph
2 is applicable, the competent audit authority shall refer the case to a
special committee under case c' of paragraph 4 of Article 66, which shall give
a reasoned decision, taking into account the internationally accepted OECD
guidelines on transfer pricing for multinational enterprises and tax
authorities, on the existence of the conditions of paragraph 2 of this Article
and on the amount of the profit mark-up on a case-by-case basis.
A decision
of the Minister of Economy and Finance shall regulate all necessary details for
the implementation of this paragraph.
7. A fine
calculated at a rate of twenty percent (20%)[b] of the additional net profits
resulting from the provisions of this Article shall be imposed on enterprises
for which the provisions of this Article apply.
[β]. In the
first subparagraph of paragraph 7, the words "twenty percent (20%)"
were substituted for the words "ten percent (10%)" in case b) of
paragraph 13 of Article 11 of Law No. 3842/2010 (FEKA' 58) and shall apply in
accordance with paragraph 2 of Article 92 of the same law from the publication
of the law in the Government Gazette, i.e. 23.4.2010.
This fine
shall be imposed irrespective of any additional taxes, surcharges and other
penalties provided for by the provisions in force and shall be paid in one lump
sum within the month following the month in which the attestation is made. The
provisions of Articles 69, 70, 71 and 74, as well as Article 9 of Law No. 2523/1997
(Government Gazette 179 A) shall also apply to this fine, with the exception of
the first subparagraph of paragraph 6 of Article 9 of Law No. 2523/1997[γ].
[γ]. At the
end of the last subparagraph of paragraph 7 the words "with the exception
of the first subparagraph of paragraph 6 of Article 9 of Law No.
2523/1997" by subsection c' of para. 13 of Article 11 of Act No. 3842/2010
(Government Gazette A' 58) and shall apply in accordance with paragraph 2 of
Article 92 of the same law from the publication of the law in the Government
Gazette, i.e. 23.4.2010. In other words, the 1/3 reduction of the fine does not
apply in this case] 8
Because,
with the Decision No. Prot.: DEL D 1133839 EX 2015 with SUBJECT: Provision of
instructions for the application of the provisions of Article 39 of Law
2238/1994, the following applies:
Α. As regards the imposition of the fine in
accordance with the provisions of paragraph 7 of Article 39 of Law No.
22383838, the following shall apply. 2238/1994, as they were in force until
their amendment by Law 4110/2013.
1. Under
the provisions of paragraph 1 of Article 39 of Law 2238/1994, as they were in
force until their amendment by Law 4110/2013, i.e. for intra-group transactions
carried out in financial periods beginning before 1 January 2012, it was
stipulated that where sales of goods or provision of services are carried out
between domestic enterprises, which are connected within the meaning of
paragraph 3, on economic terms different from those that would have been agreed
between independent enterprises, the profits which, without these terms, would
have been realised in the same period, were to be
deducted from the profits of the domestic enterprises.
2.
Furthermore, the provisions of paragraph 7 of the same Article and Law
stipulated that a fine calculated at a rate of twenty percent (20%) of the
additional net profits resulting from the provisions of this Article shall be
imposed on undertakings for which the provisions of this Article apply.
3.
Therefore, from the combination of the above, it follows that if, after an
audit, it is found that the pricing of services or sale of goods is on terms
different from those between independent enterprises, i.e., it is found that
these terms are not in accordance with the "Arm's Length Principle",
then the net profits of the enterprise are increased by the profits that were
not realized due to these different terms and in any case the fine of paragraph
7 of paragraph 7 of Law 2238/1994 as in force until 31.12.2011, without
examining whether the net result of the business is a profit or loss.
Β. Applicable provisions for the financial
periods for which the deadline for filing income tax returns is from 1.1.2011
to 31.12.2011.
1. The
provisions of paragraph 16 of Article 11 of Law 4110/2013, as amended,
stipulate that the pending documentation files of the provisions of Article 26
of Law 4110/2013, as amended. 3728/2008 that have been submitted to the
Directorate of Costing and Market Research of the General Secretariat of
Consumer Affairs of the Ministry of Development, Competitiveness,
Infrastructure, Transport and Networks until the entry into force of this law and
that relate to the administrative periods ending after 18 December 2008 and the
deadline for submission of income tax returns expires by 31 December 2011,
shall be delivered to the competent department of the Tax Administration at the
time of publication of this law and a protocol shall be drawn up for this
purpose. The statements of intra-group transactions submitted to the
Directorate of Costing and Market Research of the General Secretariat of
Consumer Affairs for all the administrative periods shall also be delivered to
the same competent service.
The
competent audit services of the Tax Administration have the right to request
the documentation files from all the enterprises that were obliged to prepare a
documentation file for the above mentioned administrative periods in accordance
with the provisions of Article 26 of Law No. 3728/2008 and to use these and the
above-mentioned data in the context of the tax audits carried out by them, in
accordance with the provisions in force in each management period. In the event
of failure to provide the competent audit department with the documentation
file within thirty (30) days from the service of the relevant invitation or
failure to submit the list of intra-group transactions, a fine equal to ten
percent (10%) of the value of the transactions for which there was an
obligation to document is imposed on the company by decision of its Head. The
Directorate of Costing and Market Research of the General Secretariat for
Consumer Affairs reserves the right of access to the above documentation files
for the purposes of conducting market research.
Pending
files are those cases for which either the audit has not been initiated or the
audit has been initiated and the audited undertakings have not been served with
a decision imposing a fine by the competent body. The opening of the audit is
understood as the first act of the administration to further investigate the
documentation file and/or to provide additional documents, in addition to the
written invitation to submit the documentation file. In particular for cases of
late submission of the statement provided for in par. 4 of Article 26 of Law
no. 3728/2008, for which until the publication of the present, the amount
specified in paragraph 6 of the same article has not been ascertained, the
independent fine specified in paragraph 5 of Article 11 of the present shall be
imposed.
The
Directorate of Costing and Market Research of the General Secretariat of
Consumer Affairs is responsible for the closure of these cases, which must,
within six (6) months from the publication of the present Law, make a
recommendation to the Secretary General of Consumer Affairs, who is responsible
for the imposition of the fine, in accordance with the provisions of paragraphs
3 to 6 of Article 11 of the Law No. A2 -8092/ 31.12.2008 Ministerial Decision
(B' 2709). After the publication of the present, overdue statements of
intra-group transactions shall be submitted exclusively to the competent
department of the Tax Administration, which shall impose the fine of paragraph
5 of Article 11 of the present.
2. The
provisions of paragraph 17 of the same article, as amended, stipulate, inter
alia, that the provisions of paragraphs 1, 2, 3 and 5 shall apply to
intra-group transactions carried out in accounting periods starting from
1.1.2012 and afterwards, as well as in a more than twelve-month accounting
period starting before 1.1.2012 and ending from 31.12.2012 onwards.
For
transactions carried out in accounting periods beginning after the entry into
force of Law No. 3775/2009 (administrative periods for which the deadline for
submitting income tax returns arises from 1 January 2011 onwards) and until the
entry into force of this Law, the documentation file defined in the provisions
of Article 26 of Law No. 3728/2008. The audit shall be carried out by the competent
tax authority, as defined in par. 5 of Article 39 of Law No. 39. 2238/1994
(C.F.E.), which shall also determine the values of intra-group transactions in
case of non-compliance or non-disposal or insufficient or inaccurate
documentation file, repealing paragraph 6 of Article 39, as it was in force
before its amendment by the present law."
3. Because:
α. According to the above, for the fiscal
periods whose income tax return filing deadline expires between 1/1/2011 and
31/12/2011, both the provisions of par. 16 of article 11 of Law 4110/2013 and
the provisions of paragraph 17 of the same article, which provide for a
different way of dealing with and controlling intra-group transactions; and b.
The change in the tax provisions for intra-group transactions made by Law
3775/2009 applies to fiscal periods for which the deadline for filing returns
is from 1 /1 /2011 onwards.
In order to
ensure a uniform treatment by the audit services for these accounting periods,
the provisions of paragraph 17 will apply.
Because, in
the financial period 1/1-31/12/2011 Mr. is a shareholder in the applicant
company with a 28.18% share, and from 30/06/2010 to 01/11/2012 the sole
shareholder of the Cypriot company '....... ", with the result that the
transacting undertakings in the present case are linked by a relationship of
direct and substantial management, economic dependence and control.
Because,
the amount of 156.920,37 € declared as accounting difference with the amended
Income Tax Return for the financial period 01/01/2011-31/12/2011 with the
number of the first day and date of filing 29/05/17 in application of the
provisions of Law No. 4446/2016, relates to part of the total amount of
depreciation of 176.684,43, which the applicant carried out on the fixed assets
purchased from the Cypriot company '.......... ", as stated in the
relevant partial income tax audit report of the D.O.Y.A. PATRON and as shown in
the documents No 5 and 7 filed with the appeal, namely (Over-invoicing/value of
purchases from the Cypriot company x total depreciation: € 3,693,150.15/ €
5,947,034.44 = 62.1 % X € 284,515.99 = € 176,684.43).
Since the
applicant company's purchases from the Cypriot company '.......... ",
relate to fixed capital goods on which depreciation is carried out, and were
not deducted as expenditure from the gross income for the financial year 2011,
the profit within the meaning of paragraphs 1 and 2 of Article 39 of Law No
2238/1994 is made through the depreciation carried out each year on fixed
assets worth € 5,947,034.44.
The fifth
(5th) plea of the applicant company is therefore accepted, all the others being
rejected.
Since, as
regards the fine under Article 39(7) of Law No. 2238/1994, the Act imposing the
fine No. /2017 was correctly imposed and is confirmed.
We decide
The partial
acceptance of the appeal filed on 18/09/2017 and with the protocol number of
the company with the name " ", with the registration number
Final tax
liability of the liable party - amount assessed based on this recommendation:
Α. Determination of the results
Loss on the
basis of the balance sheet -563.885,61€
Plus
accounting differences declared in the initial declaration 6.735,93€
Plus
accounting differences, declared with the 3/2017 amendment declaration of Law
4446/2016 No. 3/2017 156.920,37€
Balance of
loss -400.229,31€
Depreciation
difference not declared with the 3/2017 amending declaration of Law 4446/2016
no.
(176.684,43€-156.920,37€=19.764,06€)
19.764,06€
Loss for
the year -380.465,25€
Β. Fine of paragraph 7 of article 39 of Law
2238/1994: 707.245,96€
We hereby
instruct the competent authority to notify the debtor of this decision in
accordance with the legal procedure.
Exact copy
The Clerk
of the Administrative Support Department
BY ORDER OF
THE HEAD OF THE DISPUTE RESOLUTION DIVISION
THE HEAD OF
THE SUB-DIRECTORATE FOR REVIEW
GEORGE
FAKOS
A s s e s s m e n t : This decision
may be appealed to the competent administrative courts within thirty (30) days
of its notification.