Planned tax on offshore firms is bound to hit capital inflows
Greek-owned merchant shipping has a clear global lead and is developing at a fast pace, having invested huge amounts in newly built vessels. It has always been a prominent player in world shipping, but this has mainly consisted of second-hand vessels. The new growth is the result of long experience, hard work and high risks undertaken by Greek shipowners, and has been extensively accompanied by diversification through investments in manufacturing, the stock market and real estate. This has long been done via offshore companies. For shipowners, in particular, offshore companies offer flexibility and speed in management. The State has encouraged such investment, granting special privileges to these companies for re-exporting the proceeds of property sales and income from leasing them, without the requirement of a permit from the Bank of Greece. The Greek economy has reaped considerable benefits from such investment in the form of foreign currency inflows, taxes, boosts to the real estate market and the income from those employed in the sector as well as from construction. The tax advantages to offshore firms are real but very limited. This is because their set up, operation and the subsequent legal purchase of real estate here involve considerable expense, and taxes are much heavier than those paid by Greek-registered companies and individuals. Offshore firms pay transfer tax, great real estate tax (FMAP), municipal taxes and income taxes without being entitled to amortization and to deduction of expenses from taxable income. Claims that such firms enable their owners to escape paying transfer and inheritance taxes, as well as FMAP by splintering big personal properties are really unsound. The State now appears set to change the rules of the game and impose a debilitating 3 percent tax, which, in addition to the 0.7 percent FMAP and the other levies, make such investments prohibitively expensive. The excuse is that offshore companies are extensively engaged in money-laundering. What is deliberately ignored is that anyone wishing to launder dirty money would not invest in a property with an address known to authorities, but put their money into other investments more difficult to locate. The threatened change in rules is unfair, burdensome, counter to the principles of good administration, abusive and unconstitutional. It will also create a climate of insecurity and uncertainty, will deter any further such investment, hit property prices and the incomes of those working in the sector as well as the wide array of related occupations in the construction industry. It will also indirectly hit public revenues and divert capital to other countries where the framework of rules is more favorable. Any economic policy which aims to establish equality in the treatment of persons and companies should optimize the opportunity of offshore companies and secure the considerable inflows of foreign capital. Here are some proposals: -Avert proposed 3 percent tax. -Require yearly submission of compulsory and confidential declarations on real owners/shareholders of each firm in order to secure payment of transfer and inheritance taxes on registered shares in any case of change in ownership. -Abolish FMAP minimum for offshore companies, so that fragmentation of large property holdings does not deprive the State of such income. Giorgos K. Xiradakis is managing director at XRTC Business Consultants.