The Greek Council of State (Supreme Administrative Court) recently issued judgement number 2529/2022 regarding the deemed income arising following the purchase of real-estate property in Greece and how such deemed income can be justified via the import of funds in Greece from abroad.
Judgement number 2529/2022 revolves around the specifics of declaring such foreign currency in order to justify the deemed income arising out of the purchase of real-estate property and more particularly, which documents need to be submitted by the taxpayer in order for the Greek tax authorities to successfully consider that such foreign currency import justifies the deemed income. The factual matrix of the case revolves around a British citizen, who had been living and working in Greece for many years and who, upon obtaining a loan by a foreign bank, proceeded to buy a real-estate property in Kefalonia, in the Ionian islandic complex in Greece. The taxpayer justified the amount that he paid as purchase price for the acquisition of the property through the loan proceeds deriving from a loan that he had managed to obtain from a UK bank. He invoked a loan agreement between him and the lending bank, as well as the respective credit advice issued by the bank.
Greek tax authorities argued that the justification of the source of income did not satisfy the provisions of Greek tax legislation and guidelines of the Ministry of Finance, since, in case of loan agreements concluded abroad, the taxpayer is required to submit the relevant loan contract either in the form of a notarial deed or a private contract with a specific date, usually obtained by the Consulate in the relevant jurisdiction.
The Court held, rejecting the cassation application and upholding the decision of the appellate Court, that the Greek tax authorities were correct to not take into consideration the foreign currency which had been imported, when calculating the taxpayer’s deemed income, as the taxpayer had not submitted proper documentation to that end. The Court founded its ratio both in the express provisions of the relevant Greek law (Arts. 17 and 19 of Law 2238/1994 which was applicable at the time of the acquisition) and the various accompanying Ministerial decisions / guidelines which specify the documents (and their form) which need to be submitted, as well as on deductive reasoning, based on which the Greek Income Tax Code prescribes very specific circumstances in which the taxpayer does not carry the burden of proving how the imported foreign currency came to be. Apparently, any circumstance falling outside the numerus clausus set out in the Greek Income Tax Code will inevitably require that the beneficiary of such foreign currency import will need to justify how the funds came to be.
This judgement of the Supreme Administrative Court is in line with the settled case law of the same Court. It needs to be stressed, however, that, in our view, the Ministry of Finance will need to issue new guidelines so as to enable justification of funds deriving from loan proceeds through private agreements concluded with recognised foreign banking institutions without further requesting the existence of a notarial contracts or, alternatively, requesting certification of the loan agreement by the Consulate. In our experience, Consulates are notoriously reserved when it comes to providing such certifications and it is only fair that the conditions set for the justification of funds through loans issued by Greek banks apply similarly to loans issued by foreign banks, especially when the latter are located within the E.U.