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Europe's 'Final Deal' For Greece Released

by Ulrika Lomas,, Brussels

29 June 2015

The European Commission on June 28, 2015, released information on the current negotiating position of the European Commission, the European Central Bank, and the International Monetary Fund, in its ongoing talks on tax and spending policy with Greece, after the Greek Government announced a referendum on the country's future in the EU on the same day.

After a month of intensive talks on tax reform and calls from the Greek Government for it to be allowed to ease off austerity, the Commission has indicated that the proposals that it is now bringing to the table are its final offer.

It said: "In the interest of transparency and for the information of the Greek people, the European Commission is publishing the latest proposals agreed among the three institutions, which take into account the proposals of the Greek authorities of June 8, June 14, June 22, and June 25, as well as the talks at political and technical level throughout the week." In making public its proposals, the Commission is hoping to reach out to Greek voters in the upcoming referendum, with recent press conference comments signaling that EU states are still keen for Greece to remain within the Union.

"Discussions on this text were ongoing with the Greek authorities on [June 26, 2015] in view of the Eurogroup [meeting] of June 27, 2015. The understanding of all parties involved was that this Eurogroup meeting should achieve a comprehensive deal for Greece, one that would have included not just the measures to be jointly agreed, but would also have addressed future financing needs and the sustainability of the Greek debt. It also included support for a Commission-led package for a new start for jobs and growth in Greece, boosting recovery of and investment in the real economy, which was discussed and endorsed by the College of Commissioners on June 24, 2015."

"However, neither this latest version of the document, nor an outline of a comprehensive deal could be formally finalized and presented to the Eurogroup due to the unilateral decision of the Greek authorities to abandon the process on the evening of June 26, 2015," the Commission said.

The document released by the Commission says that Greece must adopt, effective as of July 1, 2015, a supplementary 2015 Budget and a 2016–19 medium-term fiscal strategy, supported by "a sizable and credible package of measures," which would deliver a primary surplus of 1, 2, 3, and 3.5 percent of GDP in 2015, 2016, 2017, and 2018. The package includes VAT reforms, other tax policy measures, pension reforms, public administration reforms, and reforms to address shortfalls in tax collection enforcement, among other things.

On VAT reform, the package would require Greece to adopt legislation to reform the VAT system, effective from July 1, 2015. The standard 23 percent rate would cover also restaurants and catering, and a reduced 13 percent rate would cover basic food, energy, hotels, and water (excluding sewage). A super-reduced rate of six percent would be levied on pharmaceuticals, books, and theater tickets. Greece would be required to streamline exemptions to broaden the base. It would be required to raise the tax on insurance and eliminate discounts, including on islands.

The Commission has said the VAT reform measures could be reviewed at the end of 2016, provided that equivalent additional revenues are collected through measures taken against tax evasion and to improve collectability of VAT. Any decision to review and revise these terms would take place in consultation with the institutions.

Other tax measures would include tightening corporate income tax loopholes, including requiring 100 percent advance payments for corporate income as well as individual business income tax by end-2016, and an increase in the corporate income tax rate from 26 percent to 28 percent.

Greece would be required to increase the rate of tonnage tax and phase out tax breaks for the shipping industry. The luxury tax on recreation vessels in excess of 10 meters would be extended and the rate would be increased from 10 percent.

The personal income tax regime would be simplified under the deal, and reform would be undertaken of the income tax code, including provisions covering capital taxation, investment vehicles, the farming industry, and self-employed persons, among other things.

Greece would also be required to introduce a new Criminal Law on Tax Evasion and Fraud and introduce the Gross Gaming Revenues tax regime, which features a 30 percent rate, on video lottery terminals.

TAGS: tonnage tax | tax | investment | business | European Commission | value added tax (VAT) | energy | insurance | luxury tax | enforcement | food | legislation | Greece | tax breaks | tax reform | Europe | Tax | Tax Evasion

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