Finance Ministry to employ the IRS checking techniques

The Finance Ministry is taking a leaf out of the book of the USA’s Internal Revenue Service in the implementation of inspections to determine taxpayers’ real taxable incomes. The new checking system will apply to all taxpayers with an emphasis on those with high incomes and the self-employed so as to reveal any untaxed revenues.

According to a decision by Deputy Finance Minister Giorgos Mavraganis, real taxable incomes will be determined by cross-checking revenues and expenses, properties and bank deposits.

The ministry’s plan provides for the thorough checking of 460,000 self-employed and small manufacturers who state annual incomes below the tax-free threshold, wealthy taxpayers with large amounts of property, taxpayers who have not explained the origin of money forwarded to banks abroad in the 2009-11 period, and those with high expenditure that is incompatible with personal and family incomes declared.

Three main techniques will be employed in cases when there is unjustified wealth (e.g. in property assets) or spending that dwarfs incomes, or when there are grounds for suspicion that the real income is above that which has been declared.

— The source and application of funds method: This technique calculates the taxable income by analyzing revenues (taxable or not), purchases and expenditure (professional, personal and family spending) and the increases and reductions in taxpayers’ property assets and obligations.

— The net worth method: This recreates the financial background of taxpayers and determines the taxable income taking into account all properties and funds at their disposal, obligations and expenditure on a personal, family and professional level, as well as all sources of income. This way there are two lists created, one with assets and one with liabilities.

— The bank deposits and cash expenditure method: This is the technique that determines the taxable income through monitoring the taxpayers’ balances through credit accounts or cash transactions and comparing them with the amounts declared on an annual basis.