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A foreign tax resident from Israel, with a tax representative in Greece, was charged income tax and a fine, after the tax audit authorities found out that the foreign taxpayer had profits from business activity, which relate to the sale of real estate, but without declaring his commencing of business activity. The taxpayer filed an appeal, requesting the annulment of the act of determining the fine, presenting his claims that there was an illegal determination of income from business activity.
Decision of the Conflict Resolution Authority
The decision of the CRA rejected the appeal, based among others on the provisions of paragraphs 3 and 5 of article 21, “Profits from business activity” of Law 4172/2013 (Government Gazette A’ 167), as they were in force during the considered tax year . Therefore, according to par.3, “For the purposes of this article, a “business transaction” is considered any individual transaction by which a transaction is carried out or the “systematic execution of transactions” in the financial market with the aim of achieving a profit. Every three similar transactions that take place within a six-month period are considered “systematic transactions”. In the case of transactions involving real estate, the period within, during which the transactions must be carried out, is two (2) years. The transaction of the sale of an asset is not taken into account when determining the profit from a business activity by an individual person, which has been acquired as a result of inheritance or as a gift from relatives up to the second degree, or has been held for a period of time longer than five (5) years”.
The jurisprudence of the Council of State
The issue of buying and selling real estate and the existence of business activity has occupied the jurisprudence of the CoS after the introduction of the disputed provision. Thus, many decisions of the CoS accept that “every purchase and (re)sale of real estate, from which a financial profit results, is not a “business” of buying and selling real estate, but the “systematic” purchase and subsequent sale of real estate in a way that results to the pursuit of profit, from the combination of the active transactions of real estate, both purchases and sales, determined from the difference between the purchase and sale prices, and/or funds useful for the exercise of business in question and not simply intention for “more beneficial” capital utilisation”. Besides, there are no exclusions and according to the law, that the case of “business” also occurs from individual or occasional transactions of buying and selling real estate in general, as long as these are aimed at achieving profit and do not simply constitute the utilisation of own capital.
The case under consideration
In the case reviewed by the CRA, the appellant bought on 18/01/2018 a 25% of an “undivided whole of 6 horizontal-declaration type properties” and then on 10/07/2018 he proceeded to transfer them. Therefore, over a period of about 6 months, such properties were bought and sold. Therefore, an intention to profit from the purchase and sale of real estate was established both by the number of properties sold and by the significant discrepancy between their purchase and sale price. For this reason, the CRA calculated that these profits came from the exercise of business activity and the taxpayer did not provide sufficient evidence, from which it can be deduced that the purpose of the purchases and sales was to cover his personal or family needs and not business activity.
Conclusion
It, therefore, becomes clear, that in the event when an individual taxpayer meets the above conditions, s/he should proceed to declare the start of start activities in order for such purchases and sales aiming at systematic profit, to be taxed as income from business activity.
Source: Martha Papasotiriou, 9/3/2023