BUSINESS & THE LAW

The cost-plus regime; a revived opportunity toward tax certainty that matters

the-cost-plus-regime-a-revived-opportunity-toward-tax-certainty-that-matters

Powered by Zepos & Yannopoulos

The challenges of fostering development in the modern world amid the Covid crisis are significant. Tax certainty has always played a critical role in attracting investment, but it now appears indispensable.

Greece has been making an effort in that direction. Among others, the recent revision of the “Law 89” cost-plus regime has brought to the table a shared-services regime offering that may prove particularly useful for multinational groups.

Law 89 provides the first type of quasi “tax ruling” that Greece offers sets aside advance pricing agreements (APAs) allowing the advance pricing of intra-group services. It further allows full tax deductibility of expenses to the extent revenues, which must originate from associated companies, are set at a pre-agreed mark up thereon (not inferior to 5%). In effect, the taxable basis is fixed and the risk of challenge by tax auditors is limited.

Until 2019, eligible services spanned from accounting and consulting to marketing and advertising or R&D. Experience shows that in the 15 years of its existence as a cost-plus regime, Law 89 has not been pivotal in attracting shared services centers to the country.

The amendments of 2019 are twofold. New activities have been added and grants have been offered.

New activities include software development, IT support, data management and storage, HR management and training, supply chain management, and computer-based call centers. Greek-based talent in IT services is a non-negligible asset for the deployment of the relevant investment.

Straightforward cash subsidies are also available for new types of activities and additional employment positions – a well-reasoned measure to boost the creation of new jobs.

Amendments have clarified that no effective management is created out of the eligible activities in Greece (a rather redundant addition, some may think, but nice to have).

Incentives alone and a refreshed special tax regime, such as the cost-plus, cannot in themselves attract investment. It is also the overall tax environment and government processes that have to reflect tax certainty, and in effect a more business-friendly climate. Recent examples in that direction include the alignment of the Income Tax Code with EU and international law, and the modernization of Greek Accounting Standards, with the parallel adoption of the IFRS and the Supreme Court’s series of decisions reinstating correct interpretations of the law – all very well received by interested investors.

Going forward, there are certain practical aspects that require further fine-tuning, such as the time and effort required to obtain the Law 89 license. Legislative measures could be taken to facilitate a quicker and more effective turnaround: for instance, a restrictive deadline for initial issuance of the license (based on the eligibility of the applicant’s operations) and a later finalization of the benchmarking analysis, which is a more time-consuming exercise for the administration’s side.

Adding some improvements to the regime, which forms part of the aforesaid wider effort to enhance administrative efficiency, is likely to assist in making it a success in the coming years. Especially now that the perimeter of eligible activities has become much more meaningful and Greece is steadily increasing its appeal to so-called digital nomads. It sure looks like the momentum is great, despite otherwise strange times.