Greece Tax Treaty with United States

Greece Tax Treaty with United States

Greece Tax Treaty with United States: Greece and the United States have had a tax treaty in Place for nearly 75-years, dating back to 1950. The United States has entered into several tax treaties with different countries across the globe — including Greece. There are many US taxpayers who are originally from Greece and/or still maintain offshore accounts, assets & investments and/or generate income from Greece. The purpose of the Greece tax treaty is so Taxpayers can determine what their tax liability is for certain sources of taxable income. While the treaty is not the final word in how items of income will be taxed, it does help residents better understand how either the IRS and/or Greece will tax certain sources of income – and whether or not the saving clause will further impact the outcome. Let’s review the basics of the United States/Greece Income Tax Treaty – and which income is taxable.

United States-Greece Income Tax Basics

In general, the default position is that a Taxpayer who is a US person such as a US Citizen, Legal Permanent Resident, or Foreign National who meets Substantial Presence Test is taxed on their worldwide income. This would also include income that is being generated in Greece and may be tax-free or exempt under the tax rules of Greece — unless an exception, exclusion or limitation applies (such as with pension).

Saving Clause in United States-Greece Income Tax Treaty

As we work through the United States-Greece Tax Treaty, one important thing to keep in mind is the saving clause. The saving clause is inserted in tax treaties in order to limit the application of the treaty to certain residents/citizens. With the saving clause, each country retains the right to tax certain citizens and residents as they would otherwise tax under general tax principles in their respective countries — absent the tax treaty taking effect.

What does the Saving Clause Say?

• • • (1) Notwithstanding any provision of the present Convention each of the Contracting States, in determining the taxes, including all surtaxes and complementary taxes, of its citizens, subjects, residents or corporations, may include in the basis upon which such taxes are imposed all items of income taxable under its revenue laws as though this Convention had not come into effect.

No Limitations on the Saving Clause

Unlike most updated Tax Treaties, the Greece and US tax treaty does not carve-out any exceptions to the Saving Clause. Below is a common example of a carve-out provision(s) from the “US/Korea Tax Treaty”

Carve-Out Example (NOT Part of Greece/US Tax Treaty)

The provisions of paragraph (4) shall not affect:

(a) The benefits conferred by a Contracting State under

• • • Article 5 (Relief from Double Taxation)

    • Article 7 (Nondiscrimination)

    • Article 24 (Social Security Payments), and

    • Article 27 (Mutual Agreement Procedure); and

(b) The benefits conferred by a Contracting State under

• • • Article 20 (Teachers)

    • Article 21 (Students and Trainees), and

    • Article 22 (Government Functions), upon individuals who are neither citizens of, nor have immigrant status in, that Contracting State.

ARTICLE XI (Government Employees; Pensions and Annuities)

Government Employees

• • • • (1) Wages, salaries and similar compensation and pensions paid by one of the Contracting States or the subdivisions thereof to an individual for services rendered to such State or subdivision shall be exempt from taxation by the other Contracting State.

What does this Mean?

This basically means that government employees receiving wages, salaries, compensation or pension by one of the contracting states for services provided in that state –will only be taxed by that state and will be exempt in the other state.

Private Pensions

• • • • (2) Private pensions and life annuities derived from within one of the Contracting States by an individual who is a resident of the other Contracting State shall be exempt from taxation by the former Contracting State.

• • • • (3) The term “pensions” as used in this Article means periodic payments made in consideration for services rendered or by way of compensation for injuries received.

What does this Mean?

This basically means that Private Pensions and Annuities derived from one state by an individual who is a resident of the other state will be exempt from taxation by the first state. In other words, they will only be taxed in the country they reside.

Saving Clause

The saving clause may impact the application of this rule, since there is no carve-out.

ARTICLE III (Permanent Establishment)

• • • (1) An enterprise of one of the Contracting States shall not be subject to taxation by the other Contracting State in respect of its industrial or commercial profits unless it is engaged in trade or business in the other Contracting State through a permanent establishment situated therein. If it is so engaged the other Contracting State may impose the tax only upon the income of such enterprise from sources within such other State.

    • (2) Where an enterprise of one of the Contracting States is engaged in trade or business in the other Contacting State through a permanent establishment the industrial or commercial profits which it might be expected to derive if it were an independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing at arm’s length with the enterprise of which it is a permanent establishment, and the profits so attributed shall, subject to the law of such other Contracting State, be deemed to be income from sources within such other Contracting State.

    • (3) In determining the industrial or commercial profits from sources within one of the Contracting States of an enterprise of the other Contracting State, no profits shall be deemed to arise from the mere purchase of goods or merchandise within the former Contracting State by such enterprise.

    • (4) The competent authorities of the Contracting

What does this Mean?

The Permanent Establishment rules are part of nearly all tax treaties — although their impact may be different post TCJA — and noting that this particular treaty has not been updated in a very long time. It basically means that unless a business from one of the countries has a permanent establishment in the other country — then the other country is not able to tax income generated from that business within its borders.

ARTICLE VI (Interest)

• • • (1) Interest (on bonds, securities, notes, debentures, or on any other form of indebtedness) received from sources within the United States by a resident or corporation of Greece not engaged in trade or business in the United States through a permanent establishment therein, shall be exempt from United States tax; but such exemption shall not apply to such interest paid by a United States corporation to a Greek corporation controlling directly or indirectly, more than 50 percent of the entire voting power in the paying corporation.

    • (2) Interest (on bonds, securities, notes, debentures, or on any other form of indebtedness) received from sources within Greece by a resident or corporation of the United States not engaged in trade or business in Greece through a permanent establishment therein, shall be exempt from Greek tax but only to the extent that such interest does not exceed 9 percent per annum; but such exemption shall not apply to such interest paid by a Greek corporation to a United States corporation controlling, directly or indirectly, more than 50 percent of the entire voting power in the paying corporation.

What does this Mean?

The ability for countries to tax interest is limited. For example, a resident of Greece that is not engaged in business in the United States but receives interest income from sources within the United states is exempt from tax by the United States. Likewise, a resident of the United States who is not conducting business in Greece but receives interest from sources within Greece shall be exempt from Greek tax as well — as long as the interest does not exceed 9%.

ARTICLE IX (Dividends)

• • • Dividends and interest paid by a Greek corporation shall be exempt from United States tax except where the recipient is a citizen, resident or corporation of the United States.

What does this Mean?

The dividends article is very limited (unlike many other tax treaties) and basically provides that a Greek corporation will be exempt from U.S. tax unless the recipient is a citizen resident or corporation of the United states.

ARTICLE XIV (Foreign Tax Credit)

• • • (1) Notwithstanding any provision of the present Convention each of the Contracting States, in determining the taxes, including all surtaxes and complementary taxes, of its citizens, subjects, residents or corporations, may include in the basis upon which such taxes are imposed all items of income taxable under its revenue laws as though this Convention had not come into effect.

    • (2) Subject to section 131 of the United States Internal Revenue Code, Greek tax shall be allowed as a credit against United States tax.

    • (3) Greece will allow against Greek tax a credit for the amount of United States tax imposed upon income from sources within the United States but in an amount not exceeding the amount of the Greek tax imposed upon such income.

What does this Mean?

The foreign tax credit is also a common provision, which provides that when there are taxes paid in one country for income generated in that country —  then when the Taxpayer files tax returns in the other country — and reports that foreign income on their tax return– they will be able to claim a foreign tax credit against income taxes paid on that income abroad.

ARTICLE XVIII (Exchange of Information)

• • • The competent authorities of the Contracting States shall exchange such information (being information which such authorities have at their disposal) as is necessary for carrying out the provisions of the present Convention or for the prevention of fraud or the administration of statutory provisions against legal avoidance in relation to the taxes which are the subject of the present Convention.

    • Any information so exchanged shall be treated as secret and shall not be disclosed to any parson other than those concerned with the assessment and collection of the taxes which are the subject of the present Convention. No information shall be exchanged which would disclose a technical secret, or process relating to trade, industry, business, or a profession.

What does this Mean?

The exchange of information provision provides that both countries will cooperate with each other to fulfill the objective of the treaty — but it does limit the Information Exchange to disallowing any information that could disclose a technical secret, or the like.

ARTICLE XIX (Mutual Assistance)

• • • (1) The Contracting States undertake to lend assistance and support to each other in the collection of the taxes which are the subject of the present Convention, together with interest, costs and additions to the taxes and fines not being of a penal character.

    • (2) In the case of applications for collection of taxes, revenue claims of each of the Contracting States which have been finally determined may be accepted for enforcement by the other Contracting State and collected in that State as though such taxes were taxes finally imposed, due and payable to that State. The State to which application is made shall not be required to enforce executory measures for which there is no provision in the law of the State making the application.

    • (3) Any application shall be accompanied by documents establishing that under the laws of the State making the application the taxes have been finally determined.

    • (4) The assistance provided for in this Article shall not be accorded with respect to the citizens or subjects, or corporation or other entities of the State to which application is made, except as is necessary to insure that the exemption or reduced rate of tax granted under the convention to such citizens or subjects, or corporations or other entities shall not be enjoyed by persons not entitled to such benefits.

What does this Mean?

Furthering the exchange of information provision, the parties to the agreement will work together in order to accomplish the overall goals of the tax treaty.

Offshore Reporting (FBAR & FATCA) & United States/Greece Tax Treaty

When a US person has various Accounts, Assets or Investments in Greece, they have to reported to the United States each year on various different forms depending on the value of and category of the assets/accounts.

Here are some common forms which may need to be filed:

5 International Tax Forms You May Have Missed

The following is a summary of five (5) common international tax forms.

FBAR (FinCEN 114)

The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.

The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does the total amount exceed $10,000 (USD)?

If it does, then you most likely have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.

Form 8938

This form is used to report “Specified Foreign Financial Assets.”

There are four main thresholds for individuals is as follows:.

• Single or Filing Separate (in the U.S.): $50,000/$75,000
• Married with a Joint Returns (In the U.S): $100,000/$150,000
• Single or Filing Separate (Outside the U.S.): $200,000/$300,000
• Married with a Joint Returns (Outside the U.S.): $400,000/$600,000

Form 3520

Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) main different thresholds:

• Gift from a Foreign Person: More than $100,000.
• Gift from a Foreign Business: More than $16,076.
• Foreign Trust: Various threshold requirements involving foreign Trusts

Form 5471

Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:

• Category 1: U.S. shareholders of specified foreign corporations (SFCs) subject to the provisions of section 965.
• Category 2: Officer or Director of a foreign corporation, with a U.S. Shareholder of at least 10% ownership.
• Category 3: A person acquires stock (or additional stock) that bumps them up to 10% Shareholder.
• Category 4: Control of a foreign corporation for at least 30 days during the accounting period.
• Category 5: 10% ownership of a Controlled Foreign Corporation (CFC).

Form 8621

Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).

The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.

*There are some exceptions, exclusions, and limitations to filing.

Receiving a Gift or Inheritance From Greece

If you are a U.S. Person and receive a gift from a Foreign Person, Foreign Business or Foreign Trust, you may have to file a Form 3520. The failure to file these forms may lead to IRS Fines and Penalties (see below).

Which Banks in Greece Report U.S. Account Holders?

As of now, there are nearly 2000 Foreign Financial Institutions, within Greece that report US account holder information to the IRS. The FFI list can be found here:

What is important to note, is that the list is not limited to just bank accounts. Rather, when it comes to FATCA or FBAR reporting, it may involve a much broader spectrum of assets and accounts, including:

• Bank Accounts
• Investment Accounts
• Retirement Accounts
• Direct Stock Ownership
• ETF and Mutual Fund Accounts
• Pension Accounts
• Life Insurance or Life Assurance Policies

Totalization Agreement & the United States/Greece Tax Treaty

The purpose of a Totalization Agreement is to help individuals avoid double taxation on Social Security (aka U.S. individuals living abroad and who might be subject to both US and foreign Social Security tax [especially self-employed individuals] from having to pay Social Security taxes to both countries).

As provided by the IRS:

• • • “The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes.

      These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country”

The United States has entered into 26 Totalization Agreements, including Greece (as of 1994).

United States/Greece Tax Treaty is Complex

In conclusion, The US and Greece tax treaty is a great source of information to help better understand how certain income may be taxed by either country depending on the source of income, the type of income and the residence of the taxpayer. The tax outcome may be changed depending on whether or not the savings clause impacts how tax rules will be applied for certain types of income.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm for assistance.