Can Greece’s Economic Problems be Solved with Tax Incentives?

By: Megan Wilson

It is no secret that Greece has struggled economically over the last several years.[1] There have been austerity measures and bailouts, none of which have been able to completely solve the problem.[2] Progress was being made – and then COVID-19 hit. Now, Greece is trying to raise revenue by encouraging people to invest in real estate, manufacturing, and to purchase homes in Greece with tax incentives.[3] Meanwhile, the Organization for Economic Co-operation and Development (OECD) has stated that Greece must make more of an attempt to combat tax evasion and “promote tax policies that aid the environment, the labor market, and innovation.”[4]

There have been several proposals directed at various activities by groups of current as well as potential taxpayers. In late 2019, the Greek government introduced a bill that aimed to attract investors by instituting a flat tax of €100,000 on global income.[5] This can be described as more than a mere hopeful incentive, since it specifically requires investors to make Greece their tax residence and invest at least €500,000 in real property within three years.[6]

Next, in 2020, the Greek government announced that it is considering raising the limit on tax-free investment for non-residents from €250,000 to €350,000 by 2022.[7] The particular tax that would be lowered through this proposal is a “supplementary tax” and is unpopular with investors.[8] Greece currently has the second highest real estate taxes in the eurozone by GDP.[9] Not only is it a direct expense, but it is also administered by local municipalities, which adds a degree of complication in terms of compliance.[10] According to Greek officials, this proposal may be a step towards eliminating the supplemental tax completely.[11] Though this provision may seem like an attractive incentive, Greek tax professionals have stated that it would have a minimal impact on the investors overall tax burden.[12]

An additional proposal was introduced this year that would provide a 15-year 7% tax rate to foreigners who move their tax residence to Greece.[13] Officials believe this proposal would help increase revenue, the tax base, and overall spending and therefore would also help achieve the goals suggested by the OECD.[14] The proposals include benefits for current Greek residents as well. One offers relief to individuals by temporarily lowing the value added tax (VAT) rate on certain purchases like books, music, and tickets to sporting events.[15] The same proposal hopes to decrease the burden on businesses and help provide them with more liquidity (particularly during the current global pandemic) by reducing requirements for advance payments and temporarily removing the tax on parental benefits.[16] A goal with this proposal seems to be that it would also help increase tax compliance, which would also satisfy the OECD.

Finally, if passed, the law would take steps to reform the country’s current tax dispute resolution system by establishing an out-of-court committee in the hopes of reducing burdens on the current court system.[17] Ostensibly this change would also assist the government in collecting tax revenue that has been outstanding as a result of disputes. One common theme in all of these proposals is that they should lead to the government getting more of their revenue sooner. The proposals aimed at foreign investors have a fairly explicit goal. The Greek government wants people to move their money to Greece – and quickly.

It is unclear how successful these proposals will be in encouraging long-term economic growth, particularly since several are temporary provisions. Some of the proposed long-term changes such as the creation of a committee for dispute resolution certainly have potential to help resolve some long-standing problems with the Greek tax regime.

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[1] Tom Espiner & Andrew Walker, Greek Debt Crisis: ‘I Wasn’t Paid for Two Years’, BBC NEWS, July 5, 2019, https://www.bbc.com/news/business-48845145.

[2] Greek Debt Crisis: ‘I Wasn’t Paid for Two Years’; Liz Alderman, Greece’s Bailout Is Ending. The Pain Is Far from Over, N.Y. Times, Aug. 19, 2019, https://www.nytimes.com/2018/08/19/business/greece-bailout-financial-crisis.html.

[3] Sarah Paez, Greece Lures Investment with More Tax Breaks for Wealthy, TaxNotes, Aug. 17, 2020, https://www.taxnotes.com/tax-notes-international/tax-preference-items-and-incentives/greece-lures-investment-more-tax-breaks-wealthy/2020/08/17/2ctjq.

[4] Sarah Paez, Greece Must Fight Tax Evasion, OECD Survey Says, TaxNotes, July 23, 2020, https://www.taxnotes.com/tax-notes-today-international/tax-preference-items-and-incentives/greece-must-fight-tax-evasion-oecd-survey-says/2020/07/23/2crbd

[5] Kiarra M. Strocko, Greece Proposes Tax Breaks to Attract Wealthy Foreign Investors, TaxNotes, Nov. 18, 2019, https://www.taxnotes.com/tax-notes-international/corporate-taxation/greece-proposes-tax-breaks-attract-wealthy-foreign-investors/2019/11/18/2b40r

[6] Id.

[7] Greece Lures Investment with More Tax Breaks for Wealthy supra note 3.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Sarah Paez, Greek Government Proposes Tax Incentives to Spur Growth, TaxNotes, July 27, 2020 https://www.taxnotes.com/tax-notes-international/tax-preference-items-and-incentives/greek-government-proposes-tax-incentives-spur-growth/2020/07/27/2cr7j

[14] Id.

[15] Id.

[16] Id.

[17] Id.