ECONOMY

Taxation evasion and crisis see official corporate incomes shrink

taxation-evasion-and-crisis-see-official-corporate-incomes-shrink

Three out of four enterprises in Greece declare an annual profit of less than the salary of one single employee.

The constant changes in income tax rates – with the latest have come at the start of the year with the corporate tax hike from 26 to 29 percent – have led thousands of companies to seek out every possible loophole in legislation in a bid to suppress their taxable earnings by as much as possible.

Data show they have managed that: Out of a total of 290,000 companies, there are 150,000 loss makers, while more than two-thirds of the other 90,000 – i.e. 65,000 companies – post profits of 50,000 euros or less per annum. Among small and medium-sized enterprises and freelance professionals the situation appears worse: Four in every five declare annual profits of less than 5,000 euros.

The combination of the economic crisis with tax evasion has seen taxable corporate earnings drop to particularly low levels: Companies’ total profits do not exceed 10 billion euros per year, while in 2004 they added up to 19 billion, and in 2007 and 2008 they came to 16 billion. Freelance professionals declare profits of 2.6 billion euros, or 8,500 euros each. Farmers show gross revenues of 4.87 billion, but taxable profits of just 1.34 billion euros, or 2,518 euros each.

It appears that the tax authorities have their hands full in finding cases of tax evasion among the country’s 1.6 million companies and freelancers, and they often face tactics that are hard to identify without exhaustive and time-consuming monitoring.

For instance, loss-making companies or professionals may appear to offer services to profit-making professionals or other enterprises. The transaction may not be real, but on paper it is all proper: Value-added tax is paid and the price is paid through the banks and declared as it should be in the client register. Therefore the salary of a board member could appear in the books as a service, with a tax rate of 12 percent, and not 29 percent, as it should be.

Another trick concerns corporate leasing, as an entrepreneur’s property could be seen as being used by the company and used as its domicile or for another purpose. Rents up to 12,000 per year bear a tax of just 11 percent (set to rise to 15 percent), but as professional expenditure this secures a tax discount of 26 to 33 percent.