Our tax litigation team has successfully defended before the Dispute Resolution Committee, on behalf of a major beverage multinational company, the deductibility of business costs comprising of interest exceeding the amount of EUR 6M. The interest related to the issuance by the company of a bond loan to finance the acquisition of the majority of shares in another entity, which it subsequently absorbed.
In this respect, Greek tax legislation (art.48 par.4 of the Income Tax Code) provides for the non-deductibility of business costs related to the participation in an entity that generates tax exempt dividend income in accordance with the EU Parent/Subsidiary Directive 2011/96/EU (“participation exemption”). Upon interpretation of the said rule, Greek Tax Administration has adopted the position that the non-deductibility is not dependent on the actual payment of tax exempt dividends but shall apply irrespectively, as long as business costs are incurred for participating in another entity.
Against the aforementioned background, we argued that the company not only did not actually receive tax exempt dividends, but, due to the merger by absorption, it would never be in a position to receive such tax exempt income in the future.
The Dispute Resolution Committee accepted the administrative appeals filed and sent back the case to the tax office to examine the fulfillment of the general deductibility requirements for the interest in question. Following an audit, the tax office decided that the aforementioned deductibility restriction is not applicable and that the interest expense met all the general deductibility criteria set by art. 22 of the Greek Income Tax Code and therefore it is tax deductible.
The above outcome could have a significant impact, as it creates a precedent for limiting the broad interpretation adopted by Greek Tax Administration, as regards the non-deductibility of participation business costs.
Our team was led by Diana Tsourapa, senior associate, with the assistance of Alex Karopoulos, partner.