Greece To Amend Rules Regarding Tax Deductibility Of Consumer Expenditure

by Ulrika Lomas, Tax-News.com, Brussels

01 February 2010

It has recently emerged that the European Commission has issued a formal request to Greece to amend its tax provisions pertaining to the tax deductibility of certain categories of consumer expenditure.

According to the Commission, the rules only allow a tax deduction of certain types of consumer expenditure incurred in Greece, and only allow Greek tax residents to carry out such a deduction. This effectively excludes non-residents from the deductions, the Commission ruled, even if they obtain the major part of their global income in Greece.

Defending its ruling, the Commission stated that: “The Commission considers that the Greek legislation on the tax deductibility of certain types of consumer expenditure runs contrary to the free movement of persons, the freedom of establishment and the freedom to provide services.”

It continued: “The non-deductibility of consumer expenditure incurred abroad has the effect of discouraging Greek residents from receiving services from abroad. In addition, such rules may also have the effect of impeding foreign service providers from offering their services to Greek taxpayers.”

It follows from the European Court of Justice (ECJ_ judgment in case C-279/93 (Schumacker), that a non-resident taxpayer who derives his income entirely or almost exclusively from activities based in Greece, is in a comparable situation to a Greek resident, and should thus enjoy the same beneficial tax treatment that applies to residents, the Commission added. Currently, however, only Greek residents are entitled to deduct the expenditure in question from their Greek income. Non-residents taxpayers who earn most of their global taxable income in Greece cannot avail of this possibility, the Commission concluded.

The request issued is in the form of a reasoned opinion, the second stage of the infringement procedure under article 258 of the Treaty on the Functioning of the European Union (former article 226 of the EC treaty). If Greece does not amend its law within two months, the Commission may refer the case to the ECJ.

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