Mr. KOSTA GRAVIA’S ARTICLE
On the issue of self-use of the properties of individual businesses and in particular of legal entities after the implementation of the new tax code of income (law 4172/2013), but up to now a lot of ink has been spilled. Analyzes, opinions, articles, circulars, positions of the Administration and much more. Countless working hours were and are still being lost for an issue which, for the tax administration — as stated in its circulars itself — is fiscally irrelevant (including for legal entities). It is worth noting here, for historical reasons only, how the issue of property expropriation was dealt with in the year 1958: When in the year 1958 things were dominated by simple logic).
Covid-19 and appropriation
Due to the corona virus pandemic that also spread in our country, thousands of businesses were closed by state order or were classified in the so-called affected businesses. In the past year, the turnovers of businesses, mainly in the food and tourism sectors, were precipitated, as a result of which large losses were recorded for the year 2020. One of the problems – with tax ramifications – that individual businesses will face when clearing this year’s declaration is that of income due to self-use of their properties.
The provisions in force
But let’s remember what the provisions of Law 4172/2013 define:
According to the provisions of paragraph 2 of Article 39 of Law 4172/2013, the income from self-use or free grant is presumed to consist of three percent (3%) of the objective value of the property. At the same time, self-use is also recognized as an expense for sole proprietorships.
Consequently, in sole proprietorships, self-use income for the natural person/entrepreneur is taxable and at the same time deductible as an expense from the gross revenue of the business. Here, it is worth noting that the whole issue of appropriation and burden or not for the business (including sole proprietorships) is related to the tax rate with which the net profits of the sole proprietorship are ultimately taxed (see coefficients in article 15 of Law 4172/2013).
This year, however, due to the harmful use of the vast majority of individual businesses (especially as we mentioned in the food sector , tourism, etc.) the expense of private use will not have any substantial counterpart (i.e. the loss will simply increase), while the assumed income will be taxed normally and in fact at a tax rate, in any case, higher than the import tax rate (9%).
Example
Let it be a business (guesthouse – sole proprietorship) that remained closed by government order for many months in the year 2020 and that finally showed losses in this fiscal year. 3% of the objective value of the property that she uses for her needs amounts to 9,000. This presumptive annual income will be taxed as income from real estate and in this case at a rate of 15% (cf. see par. 4 of article 40 of Law 4172/2013).
Finally, the tax burden for this reason amounts to 1,282.50 euros. For properties with a higher objective value, the burden is even greater, a fact that cannot be ignored.
Essentially, while entrepreneurs try to find their pace in a toxic environment due to the pandemic, they will be asked to pay large amounts of tax due to the expropriation of real estate, even though their businesses were closed for months by government order.
Suggestion
In our opinion, the leadership of the Ministry of Finance must look carefully at the issue in question and provide a solution even if at the last moment, so that thousands of sole proprietorships are not burdened with large amounts of tax due to embezzlement. Furthermore, at a later stage, the issue of private use in businesses (both individuals and other legal entities) must be reviewed in general in order to get rid of the burdens of the past that we have been dragging for so many years.
THE QUESTION OF SYRIZA MPs
“>The problem that will be faced by closed or affected individual businesses, which will be asked to pay a tax for the appropriation of their properties, is brought to the parliament by 50 MPs of SYRIZA-Progressive Alliance at the initiative of the head of the Department of Finance and Member of Parliament II of Piraeus, and former Deputy Minister of Finance Mr. Tryfona Alexiadis. The MPs report that despite the fact that many of them remained closed by state order and were characterized as affected, as a result they declare for in 2020 losses instead of profits, natural persons/entrepreneurs will be asked to pay tax for the appropriation of their business properties.
The issue mainly concerns those most affected by the pandemic sectors, individual businesses in tourism, food, retail trade, as well as individual businesses in the field of entertainment. With businesses recording losses, being closed or underperforming, the current way of determining presumptive income is grossly unfair to the affected SMEs, who see the government instead of supporting them, legislating favorable provisions for those businesses that have shown profitability during the crisis .
The MPs ask the Minister of Finance if:
– He intends to rationalize the system for determining presumptive income, in order to address the tax injustices caused by the government’s measures to deal with the pandemic
– In view of the submission of tax returns, it will intervene immediately legislatively, in order to avoid an unfair tax burden on citizens who count losses and not profits.
The question is attached in detail
Athens, May 20, 2021
QUESTION
To the Minister of Finance
Subject: “Corporate tax on closed or distressed businesses”
Severe problem is expected to be caused to sole proprietorships when settling the income tax return for 2020, as they will be asked to face significant tax burdens.
Specifically, it seems that, despite the fact that many of them remained closed by state order and were classified as affected, as a result of which they declare losses instead of profits for 2020, natural persons/entrepreneurs will be asked to pay tax for the appropriation of their business properties.
The issue was raised on a well-known tax-accounting website with an article by Mr. Konstantinos Gravias, which was published on May 11, 2021 and was entitled “Property acquisition for closed and affected sole proprietorships – Large tax burdens”.
The issue mainly concerns individual businesses in tourism, food, retail trade, as well as individual businesses in the field of entertainment, which belong to the sectors most affected by the pandemic. It is directly related to the determination of imputed income, since three percent (3%) of the objective value of the property is considered as income from personal use (or free concession) for the natural person/entrepreneur, while, at the same time, this amount is an expense for his own business. Thus, we are faced with the paradox of creating and/or increasing the loss recorded by the business that has been closed for months and/or under-functioning, however, at the same time, the natural person must declare a significant amount of presumed income, which will lead to a significant burden on him.
BECAUSE the measures to support the affected businesses proved to be insufficient, in order to deal with the universal loss of their income, as imposed by the government,
BECAUSE the question of determining imputed income, although necessary to tackle tax evasion and tax avoidance, in the current conditions of the pandemic, causes injustices in the taxation of the affected citizens,
BECAUSE the government has repeatedly stated its intention to support small and medium-sized businesses and has many times brought articles into law, which probably favor only those businesses that managed to appear during the crisis profitability,
The responsible Minister is asked:
- Does he intend to rationalize the system for determining imputed income, in order to address the tax injustices caused by the government’s measures to deal with the pandemic?
- In view of the submission of tax returns, will it immediately intervene legislatively, in order to avoid an unfair tax a burden on citizens who count losses and not profits?
The asking MPs
Alexiadis Tryphon
Zeibek Hussein
Alexandros Meikopoulos
Yannis Sarakiotis
Eleftherios Avramakis
Emmanuel Thrapsaniotis
Yannis Mouzalas
Elissavet Skoufa
Stavros Arachovitis
Kalamatianos Dionysis
Yiannis Balafas
Spirtzis Christos
Theodora Augeri (Dora)
Karasarlidou Frosso
Konstantinos Barkas
Sirmalenios Nikolaos
Avlonitis Alexandros-Christos
Katrougalos Giorgos
Bournos Yiannis
Triantafyllidis Alexandros
Vagena Anna
Katsis Marios
Moraitis Thanos
Tsakalotos Euklidis
Vardakis Sokratis
Kafantari Hara
Katerina Notopoulou
Tsipras Georgios
Vetta Kalliopi
Kokkalis Vasilios
Xanthopoulos Theofilos
Famous Sokratis
Giannoulis Christos
Kouroumplis Panagiotis
Xenogiannakopoulos Mariliza
Dimitris Haritou
Giolas Ioannis
Lappas Spyridon
Papadopoulos Athanassios
Christidou Ralli
br /> Dritsas Theodoros
Malama Kyriaki
Ekaterini Papanatsiu
Georgios Psychogios
Eleftheriadou Sultana
Mamoulakis Charalambos
Poulos Panagiou
Zachariadis Konstantinos
Markou Konstantinos
Santorini Nektarios
AADE’S ANSWER TO THE QUESTION OF SYRIZA MPs
AADE, with a document submitted to the Parliament, responded to a question by SYRIZA MPs, regarding with appropriation in individual businesses. The answer of the AADE is as follows:
- The issue raised in the said question regarding the determination of the income derived from the own use of property and they acquire it natural persons carrying out business activity, which are affected by the Covid-19 pandemic, requires the establishment of more specific legislation, a fact that escapes the competences of our service, as it is linked to the more general formulation of tax policy, it is a matter of political will and presupposes relevant legislative initiative.
- Regarding the determination of the presumptive income from own use of property in par. 2 of article 39 of Law 4172/2013 (A’167, KFE) it is defined that the income from own use or free concession it is assumed that it consists of three percent (3%) of the objective value of the property.
- Furthermore, with the information POL.1069/2015 circular, which gave instructions on the taxation of income from real estate (articles 39 and 40 of Law 4172/2013), it was clarified, among other things, that the income from self-use of land or real estate is presumptive income for the owner of the property and at the same time a deductible expense when it is used for the exercise of business activity, as long as the conditions defined in article 22 of Law 4172/2013.
- Also, in paragraph 26 of article 5 of the Decision of the Governor of AADE under items A.1118/2021 (B’ 2226), among others , it is defined that, in Sub-table 4D2 (Income from real estate) the gross income in money or in kind resulting from the leasing or sub-leasing or from own use or granting the use of land and real estate to third parties, installations or constructions, places for placing advertising signs is declared as well as from renting, subletting, own use, free concession of common spaces belonging to owners of divided properties (ref. 131-132, 133-134).
The income from self-use or free concession is presumed to consist of three percent (3%) of the objective value of the property according to the current prices on 12/31/2020.
- Furthermore, with the E.2112/2021 circular, with which instructions were given to complete the form E3 (Statement of Financial Data from Business Activity) and Statement of Tax Reform for fiscal year 2020, it was clarified, between others, that in Table C1. “Total rents paid”, is stated in addition to the rents paid for leased premises and the assumed occupancy expense.
- Other issues raised in this question are outside the scope of our service.
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