Analysis by Christos Antonopoulos and Ioannis Rousakis

Transactions between companies within a group are referred to as ‘intra-group transactions’ and are subject to scrutiny by tax authorities. The fundamental principle governing intra-group transactions is the so-called ‘arm’s length principle’, which requires all transactions (e.g., purchases and sales of goods, provision and receipt of services, leases, royalty payments, financial transactions such as loans, etc.) to be conducted on economic and commercial terms equivalent to those that would apply between unrelated parties (independent businesses) under comparable circumstances.

Business groups determine their pricing and economic policies taking into account the tax framework for intra-group transactions, in order to avoid the problem of overtaxation of any one entity, thereby minimising tax costs and achieving a more rational management of their financial resources.

Who Are Considered Associated Parties?

Any person who participates directly or indirectly in the management, control, or capital of another person, who is a related party or with whom they are connected, namely:

• Capital participation: any person who directly or indirectly holds shares, units or participation in the capital of at least 33%, by value or number, or rights to profits or voting rights.
• Management participation: two or more persons, if any person directly or indirectly holds shares, units, voting rights or participation in the capital of at least 33%, by value or number, or rights to profits or voting rights.
• Influence: any person with whom there is a relationship of direct or indirect substantial administrative dependence or control, or who exercises decisive influence or has the ability to exercise decisive influence over another person.
• Permanent Establishment: for example, branches of multinational companies operating in Greek territory.

What Are the Basic Obligations?

• Preparation of a Transfer Pricing documentation file.
• Completion and submission of a summary information table in XML format to the Independent Authority for Public Revenue (AADE).
• Country-by-country report (in certain cases).

Who Is Exempt?

Apart from large multinational groups, Greek groups with small and medium-sized subsidiaries are also subject to the relevant provisions, as the exemption thresholds are particularly low. Specifically, companies with intra-group transactions of up to EUR 100,000 are exempt, provided their turnover is below EUR 5 million. If turnover is higher, the exemption threshold is set at EUR 200,000.

What Are the Main Documentation Methods?

Traditional methods:

• Comparable Uncontrolled Price Method (CUP)
• Resale Price Method (RPM)
• Cost Plus Method (CPM)

Transactional methods:

• Transactional Net Margin Method (TNMM)
• Transactional Profit Split Method (PSM)

In practice, the Comparable Uncontrolled Price method is the most direct and reliable method for applying the arm’s length principle, as it involves a comparison between the observed price in a controlled transaction and the price in a comparable transaction between independent businesses under similar conditions and given an identical product. However, each situation is different, and depending on the circumstances, nature, and specifics of the transactions, different documentation methods may be preferable.

How Important Is the Documentation of Intra-Group Transactions?

Ioannis Rousakis, Partner at UHY Alpha Accounting and Consulting and specialist in Transfer Pricing matters, states: ‘Transfer Pricing can today constitute the number one tax issue globally for groups of companies. Tax authorities in Greece are placing increasing emphasis on the proper application of Transfer Pricing legislation. Specifically, they have created a dedicated department for auditing intra-group transactions, where companies’ documentation files are not reviewed by the tax auditor conducting the routine audit but by a specialised unit that focuses exclusively on this work. This unit is staffed by highly capable and qualified technocrats who, owing to the experience gained through their specialisation, are able to get to the root of the problem.’

‘In line with recent developments in our tax system, such as the establishment of a beneficial ownership database, combined with the obligation for companies to declare their associated entities in Form E3 and the transaction declaration (MYF), or shortly via the myData platform; the tax authority has the ability, through a simple algorithm combining all the above data, to immediately and accurately identify the number and volume of intra-group transactions of any group and to proceed with the relevant audits.’

‘The issue of properly managing intra-group transactions is also very significant for a business from another angle, as the fines are particularly high (e.g., EUR 10,000 – EUR 100,000 for failure to prepare a Documentation File), in addition to the potential calculation of accounting differences that could have been avoided.’

Key to Submitting a Successful Documentation File

Christos Antonopoulos, Partner of Audit Services at UHY AXON, states: ‘In order to establish an optimal tax treatment and comply with intra-group transaction legislation, a consistently correct and tax-compliant pricing policy for intra-group transactions must be formulated before the transactions even begin. The documentation issue must be approached proactively and in an organised manner, not hastily and reactively. An incorrect policy may not create tax problems in one financial year, but the same policy in a subsequent year could become problematic.’

Ioannis Rousakis states: ‘The deadlines for preparing the documentation file and submitting the documentation table are extremely tight, and from our experience — especially in the case of smaller groups, the issue of documenting intra-group transactions should ideally be resolved no later than the deadline for the preparation of the Balance Sheet and the submission of the income tax return. This is recommended because during the documentation process, needs for supplementary invoicing may arise which, if not carried out in time, could lead to accounting differences that could easily have been avoided.’

Comparability, which is the key tool for verifying compliance with the arm’s length principle, can be applied using different methods and approaches. Our firm uses specialised tools such as the external Amadeus database, a product of the renowned rating agency Moody’s. Amadeus includes extensive information such as: historical published financial statements of Eastern and Western European companies; comparative data with companies of comparable activities and size; analysis of corporate structure; identification of parent companies and shareholders; and correlation of companies with common ownership structures.

Christos Antonopoulos states: ‘Large, medium-sized, and even small businesses are called upon daily to solve the difficult equation with two key variables: achieving a reduction in the tax burden while simultaneously complying with legislation. Over the years, meeting tax obligations relating to intra-group transactions has become an increasing risk for every company not exempt from the relevant provisions. At the same time, opportunities arise that, with the right strategy, each organisation can capitalise on. With proper preparation and attention to detail, Transfer Pricing can prove to be a manageable challenge for any business.’

* Christos Antonopoulos is a Partner at UHY AXON Certified Auditors AE and Ioannis Rousakis is a Partner at UHY ALFA Accounting and Consulting AE.