The content of the circular, which is of great interestbecause of the wide discretion of the tax authorities in the characterization of civil legal actions as allegedly business, resulting in the possibility of imposing heavy tax obligations to unsuspecting tax-paying citizens, is as follows:
E.2031/2023 : Clarifications on the application of the provisions of par. 3 of of article 21 of Law 4172/2013 (A’ 167) (KFE)
Athens, April 26, 2023. No. Prot: E.2031
GENERAL DIRECTORATE OF TAXATION
DIRECTORATE OF DIRECT TAXATION
SECTION A’
Tach. Director: Kar. Serbia 10
Tach. Code: 101 84 Athens
Phones: 210 3375312
Email: deaf@aade.gr
Url: www.aade.gr
SUBJECT: Clarifications for the application of the provisions of paragraph 3 of article 21 of Law 4172/2013 (A’ 167) (KFE).
SUMMARY
A) SUBJECT
Circular concerning providing clarifications for the application of the provisions of paragraph 3 of article 21 “Profits from business activity » of the KFE.
B) CONTENT
The content of the circular is to provide clarifications on issues related to the acquisition of income from business activity as defined in paragraph 3 of article 21.
C) SCOPE
The circular concerns natural persons who carry out individual operations or systematic operations with the aim of achieving profit, which are taxed as income from business activity.
Regarding the above subject and following questions submitted to our service, we inform you of the following:
- With the provisions of paragraph 3 of article 21 of Law 4172 /2013 (KFE), as they apply after their amendment by article 29 of Law 5024/2023 (A’41), it is defined that for the purposes of this article a “business transaction” is considered any individual act by which transaction or the systematic execution of transactions in the financial market with the aim of achieving profit.
Every three similar transactions that take place within a six-month period are considered systematic transactions. The provision of the previous paragraph does not apply to the securities of article 42 which are the subject of trading in an organized or non-organized market or multilateral trading mechanism, including the Alternative Market of the Athens Stock Exchange, or to the bonds issued by listed companies, as well as to the government bonds.
By decision of the Minister of Finance, the application of the previous paragraph can also be provided to any other regulated market or other securities.
In the case of transactions involving real estate, the period of the second paragraph is two (2) years.
The act of selling an asset by a natural person, which has been acquired due to inheritance or as a gift from relatives up to the second degree, or has been held for a period of time longer than five ( 5) years.
The contribution of securities is not considered a “business transaction” in the event that the contributing natural person is the sole shareholder or partner of the recipient in accordance with par. 4 of article 42.
- Furthermore, with the provisions of par. 5 of article 21 of the CPC, which was added by par. c of par. 3 of article 115 of Law 4549/2018 and in accordance with par. 18 of this article, applies from the tax year 2019 onwards, it is defined that for the purposes of applying paragraph 3, a single transaction means the transfer of an asset, which does not fall under the provisions of articles 41 or 42 of the Tax Code.
- Also, with case a’ of par. 33 of article 72 of the CFE, as formed after its amendment with the provisions of article 14 of law 5000/2022 (A’226), it is defined that the validity of article 41 is suspended until December 31, 2024.
- In the sense of the provision of paragraph 3 of article 21 of the CFI “business transaction” is carried out when a transaction is carried out in the financial market in exchange for money or in a way that has the purpose of making a profit.
The scope of the provision in question includes not only the systematic performance of similar acts but also the individual act, as long as it is for profit.
Profit means the difference between the acquisition value and the sale value, as these values are determined by the relevant documents, documents or contracts issued or drawn up as the case may be. In the cases of acquisition or transfer by donation (except for the transfer by donation by relatives up to the second degree, see below, par. 8), the value of acquisition is that on the basis of which the gift tax was calculated or an exemption from it was granted, as shown by the relevant contract or any public document.
In the case of construction of a building, the cost of its construction and the value of the plot corresponding to the property being sold are considered as acquisition value. If the acquisition price cannot be determined it is assumed to be zero.
- The “purpose of making a profit”, as a matter of fact, comes down to the audit power of the Head of the competent audit authority. Each case should be examined on the basis of the facts, and the existence of the purpose of making a profit should be sufficiently inferred from the circumstances in general in which the transactions are carried out, as the burden of proof lies in principle with the tax authority.
Such conditions are indicative of the sale within a short period of time from the acquisition and in combination with the amount of the achieved price, in the case of the construction of a building, the ratio of the apartments that were sold in relation to those that were built and the time that elapsed from the construction until the sale, the purchase of properties from auctions and their sale, etc.
Conversely, it is not considered that there is the purpose of making a profit in the case of the sale of properties that were acquired for the purpose of capitalization (e.g. .rental, owner-occupation, private use of business premises, etc.) and the sale is due to other reasons which the seller can present and prove.
However, it should be noted that the purpose of making a profit must exist during the acquisition of the thing (e.g. purchase, construction of the building), which is the subject of the considered transaction.
In order for a transaction to be considered business, for the purposes of applying paragraph 3 of article 21 of the CFE, the existence of a business organization is not required. 3) similar transactions (sales) within a six-month period or within two (2) years in the case of transactions involving real estate. Like-kind transactions for the purposes of applying the provision in question are sales of similar or similar items (eg cars regardless of make or model, works of art, jewelry, watches, etc.) for profit. Critical in this case is the number of transactions and not the number of assets sold in each transaction.
In the event that the “systematic performance of acts” is established in accordance with the above, for each subsequent act, it is presumed that there is the purpose of achieving profit and now the taxpayer bears the burden of proof to the contrary. - It is clarified that for the calculation of the time limit within which the similar transactions must have been carried out in order to be characterized as systematic transactions (six months or two years, as the case may be), the day of the first transaction is taken as the starting point ( of sale), without being linked to the concept of the calendar or tax year as defined in article 8 of the Tax Code.
Especially for real estate, the date of signing the first definitive contract is considered as the starting point for calculating the two (2) year period. Properties sold under one contract to the same buyer are considered one (1) transaction without considering the number of properties. Likewise, selling multiple properties to the same buyer on the same day but under different contracts is considered one transaction. Conversely, properties sold under different contracts to the same buyer at different times are considered different transactions based on the number of contracts and not the number of properties
The profit from each transaction should be included in the income tax return of the year in which it was carried out. If the critical time limit of six months or two years is completed in a different tax year and the deadline for submitting an income tax return for that year has passed, amending returns are submitted.
- According to the penultimate paragraph of paragraph 3 of article 21 as it was added by paragraph 2 of paragraph 3 of article 115 of Law 4549/2018 and according to paragraph 18 of of this article is applicable from the tax year 2018 onwards,the act of sale by a natural person of an asset which has been acquired due to inheritance or by gift from relatives up to the second degree does not fall within the scope of application of par. 3 or has been retained for a period of time longer than five (5) years.
Therefore, the act of selling an asset that has been acquired with a giftfrom relatives of a third party and subsequent ones is not excluded from the scope of the provision in question degrees.
Regarding the retention time, it is clarified that five full years must have been completed from the date of acquisition, as it appears from a relevant document (e.g. legal document, contract, etc. ). It is also clarified that because the above provisions established criteria on the basis of which, for specific operations, it is not considered that the purpose of making a profit exists, either due to the way the asset was acquired or due to the time period of holding it, these operations are not taken taken into account when determining the profit from business activity, even if they were made in tax years before 2018. - If more than one asset is sold in the same transaction, the relevant criteria are considered for each one separately. If the above conditions are not met for any of them, then its sale is taken into account for the application of the provisions of par. 3 of article 21 of the CFE.
- Regarding the individual property transfer deed, it is clarified that from the tax year 2019 onwards (par. 18 of article 115 of law 4549/2018), in accordance with par. 5 of article 21 as an individual act for the purposes of applying paragraph 3, means the transfer of an asset, which does not fall under the provisions of article 41 of the Civil Code. Therefore, from the tax year 2019 onwards, the individual act of transfer of real estate for the purpose of making a profit does not fall within the scope of par. 3 of article 21 of the CFE.
- Also, it is clarified that in the event that a natural person a partner or shareholder in a construction company agrees to provide his plot of land to a construction company in which he participates, in order for the latter to erect a building with the consideration system and the provider receives apartments in return, if he sells them in the future, because this sale is essentially extension of the activity of construction – sale of real estate which will be manifested outside the company, it is considered that there is an intention to achieve a profit and therefore any profit that will arise from the future sale of these will be taxed as income from business activity of paragraph 1 of the article 21 KFE, even if only one of the properties that the natural person will receive in exchange is sold.
- It is noted that with the DEAF A 1136043 EX 2018/17.9.2018 document it was clarified that in the case of sole proprietorships , because the natural person is also the sole operator of the business, it follows that when an individual building construction and sale business ceases its operations, its marketable goods, i.e. the apartments that have not been sold, remain in the ownership of the natural person-contractor and do not it is considered that gross income is obtained for its carrier. Any profit (sale value minus construction costs) that will arise from the sale of the above apartments in the future is taxed in the name of the natural person as income from business activity based on the provisions of article 21 of the CFE and not on the basis of the provisions of article 34 of Law 2238/1994 (presumed determination of income), regardless of the time of issuance of the building permit. Similarly, in the event that a builder of multi-family houses, running a sole proprietorship whose object is the sale of apartments under construction, decides to keep one of the apartments he erected for sale (tradable goods of the business) for the purpose of his business establishment (own use) or the satisfaction of his housing needs (home ownership) or the rental, the value of this building, does not increase the gross income of his business, as the element of profit is missing. The profit that may arise from the sale of the above apartment in the future constitutes income from business activity under article 21 of the Civil Code for the determination of which the provisions of articles 22 and 23 of the Civil Code apply, as well as what has been specifically clarified with the Civil Code 1113/2.6.2015 our circular. Furthermore, it is clarified that in the above-mentioned cases income is obtained according to paragraph 1 and not according to paragraph 3 of article 21 of the Tax Code and therefore the criteria of the penultimate paragraph of paragraph 3 do not apply.
- Also , with the provisions of the third paragraph of par. 3 of article 21, it is defined that the transactions on the securities of article 42 which are the subject of trading in an organized or non-organized market or a multilateral trading mechanism, including the Alternative Market of the Stock Exchange, are not considered to be systematic transactions of Athens or for bonds issued by listed companies, as well as for government bonds. In particular, transactions on securities traded on a non-organized market are not considered systematic transactions from the tax year 2017 onwards (paragraph 2 of article 77 of Law 4484/2017). For the tax years 2019 and following, and in accordance with par. 5 of article 21 of the CFI, the individual act of transfer of an asset does not fall under the provisions of paragraph 3 of the same article, which falls under the provisions of article 42 of the CFI. In addition, with the last paragraph of paragraph 3 of article 21, as added by the provisions of article 29 of Law 5024/2023 and applicable from the tax year 2023 onwards, the contribution of securities to the case where the contributing natural person is the sole shareholder or partner of the recipient in accordance with par. 4 of article 42.
- Regarding the transfers of securities in article 42, the above applies as of 24.12.2014, when and with the provisions of par. 2 and 4 of art. 88 of Law 4316/2014 (A’270), paragraph 3 of Art. 21, so that, as it appears from the relevant explanatory statement, the profits from the transfer of securities acquired by natural persons and the resulting income from these operations are taxed according to the provisions of article 42 of the same law, as long as the natural persons obtain a profit from these transfers as investors and not from the exercise of a professional activity.
Consequently, the profits obtained by natural persons from the transfers of securities of article 42 of the Tax Code, from 24.12.2014 onwards they are taxed as income from capital transfer capital gain and not as income of par. 3 of article 21 of the Tax Code
- On the contrary, the systematic sale of foreign exchange and other investment goods (such as gold bars, gold pounds, precious stones, etc.) falls within the provisions of paragraph 3 of article 21 of the CFE. ) but also the individual act of selling them, as long as they are done with the aim of making a profit, given that the goods in question are not included in the securities named in article 42 of the CFE. It is clarified that there is no question of being subject to the provisions in question in cases where the foreign exchange market is carried out for investment or savings purposes or to cover the same needs, such as e.g. When a foreign exchange is bought abroad, and then, upon returning to Greece, the remaining foreign exchange that was not used abroad is sold. 3 of Article 21 of the CCP, listed on Code 427-428 “Income from the business of Article 21 (3) of the Article 21 CC” of the income tax return (Form E1). The income earned in accordance with the paragraphs 11 and 12 hereof is listed on code 403-404 “Income from business without electronic information and without starting”. Text-Align: Justify; “>
AADE’s Commander
GEORGIOS PITSILIS
