Hundreds of thousands of tax audits going back to 2001 will have to be cancelled following the ruling of the Council of State. The Plenary decided that tax audits going beyond the five-year limit are against the Constitution. The Council of State decision is final and irrevocable.
The ruling is expected to affect more than 1,000, 000 tax payers and the cases of large scale tax evasion and several thousands of suspects whose names are on the so-called Lagarde-List and the Borjans-List. The lists containing names of Greeks with bank accounts abroad. They were handed out to Greek authorities.
According to CoS decision, tax audits need to be conducted within a “reasonable” time frame.
The judges unanimously ruled that continuing extension of the period of retrospective tax audits was against the constitution.
After 2010, all Greek government started to extend the five-year limit backwards seeing that time was not enough to audit especially the lists with suspected tax evaders. Each year they voted to extend the 5-year limit for one year. This also led to the effect that audits were not conducted in the pace they should as auditors rest on the next extension, among others.
- The CoS ruling: In 2017 no audits o9lder than 2012 possible.
A couple of months ago, the Greek government had decided to extend retrospective tax audits back to 2001 and until 2012, hoping to ‘catch’ notorious tax evaders and increase state revenues.
But the Council of State said that with the modern technical tools currently available at the tax offices, audits can be conducted within a reasonable time frame and that audits were much easier than in the past.
The court seems to keep the 10-year limitation when new evidence about undeclared income arise.
For example, for the years 2000-2005, possible tax evasion has been written off.
- The Lagarde List, for example, contains data up to 2007. Audits based on new evidence must be conducted until end December 2017. KTG understands that audits for 2005 or 2006 have expired.
It leaves open a window for a one off extension through.
Citing reasons of “public interest” the CoS ruling notes that taxpayers, whether natural persons or enterprises turn into ‘hostages’. “Taxpayers who committed tax evasion 20 or 21 years ago are called to pay high penalties that might lead to their economic collapse given the current situation in the country,” the court ruling notes at some point.
The judges estimate that the tax evasion of the past did not bring revenues in the state funds. “The public administration is burdened without economic benefits” and furthermore, it has neither the human resources nor the time to audit past cases when it is difficult to audit and combat the current tax evasion.
The CoS ruled after three appeals submitted by “a big petrol company, one from a big construction company and one by a former left-wing lawmaker who was to be subject of audits due to gap between his assets and the income declarations. The MP left for another political party,” I heard on a television broadcast on Wednesday.
According to Capital.gr, “a company trading petroleum filed for appeal when it was fined with 3,986,826 euros for its tax declaration in 2002 and an additional tax of 11,102,850 euros for inaccurate tax declaration. The Administrative Court of Appeals cancelled the tax audit sheet for the income of 2002 on December 2010. The Greek state appealed to the Council of State.”
The Council of State decision strikes a blow to government plans to significant increase of revenues through audits that would go up to 16 years back.
The Finance Ministry refrained from commenting and let sources tell media that the ruling refers to the audits that are not launched within the 5-year limit.
However, the government is furious at the ruling. A journalist at state broadcaster ERT magazine “Newsroom” lashed out at the Judges and read a long list of what the judges ruled as “conform with the constitution” in times of loan agreements and bailout programs. “They ruled the MoUs, the salaries and pensions cuts were conform with the Constitution, … except the cuts for their own sector.”
Health Minister Pavlos Polakis posted on Facebook that “judges protect thieves for the sake of TV station owners.”
The Union of Judges at the Council of State replied to the criticism speaking of “blatant criticism that offers poor service to the country and the citizens and it follows the legislation of Greece and the European Union.”
Seeking ways to bypass the ruling
Now the government is seeking ways to not lose what the government thinks it belongs to the state. The total amount of debt the state can/could claim is estimated at 95 billion euros. However, there are companies debts on the lists of debtors the state will never manage to collect. Company closed, owner in heaven or in hell. No matter how you call it hardly any deceased has paid back his debts. So, why should these debt remain on the debtors’ lists? Probably, because they outstanding amount look nice on accounting sheets.
The government insists that audits can go back to 10 and even 20 years especially if “new evidence arise” due to lifting of the bank privacy and the state access to bank accounts of 1,300,000 taxpayers. It wants to chase bank transfers abroad after 2010, when the country sought the first bailout and the bank run started.
Will “bank transfers” be legitimate to be used as “new evidence”? So far, courts have turned down similar requests saying bank trasnfer cannot be considered as new evidence as the money was already on the bank accounts.
The Council of State is expected to rule about this issue in upcoming October.
According to some Greek media, the state might even have to return the penalties it has collected from older audits. A wave of appeals is expected.
Greece’s lenders follow the issue with great interest and one should remember that it was the International Monetary Fund that it was pressing the government to let older cases go through without audit.
PS what is the purpose of imposing tax penalties people cannot afford to pay?