The Tax Framework of Corporate Transformations after Law No. 4601/2019

Legal Insight

July 2020

George Kefalas, LL.M. (mult.), Μ.Sc.

Christina Koliatou, LL.M, PgCert

Summary: On 15.4.2019, the new law on corporate transformations (Law 4601/2019) entered into force. As we have already presented in our previous newsletter, the provisions of this law regulate the conditions and the procedure for the implementation of the various forms of corporate transformations. On the contrary, the tax framework of the transformations and, in particular, the tax incentives provided by the legislator in order to carry out the transformations and create stronger economic units are still regulated by pre-existing provisions of Law no. 4601/2019. The subject of this note is the presentation of these tax incentives and their operation in the context now set by Law no. 4601/2019.     

 1.  Introduction

In our previous note we analysed the forms of corporate transformations, their preconditions and the process of their occurrence. An equally important - if not more important - issue of interest to market participants is the tax incentives provided by the legislator for certain forms of corporate transformations. The purpose of providing tax incentives is to create strong economic units in the Greek and European market. These issues are not regulated by Law No. 4601/2019, but continue to be governed by fragmentary provisions contained in development or tax laws, the most important of which are Decree-Law 1297/1972, Law 2166/1993 and Law 4172/2013 (KΦE - Income Tax Code). Thus, it is expressly provided in Article 4 of the new law that the tax regulations of Laws 1297/1972, 2166/1993 and 4172/2013 remain in force even after the entry into force of Law No. 4601/2019, however, to the extent that they are compatible with the provisions of the latter.

2. The tax incentives provided

For the reader's convenience, the tax incentives granted are presented in tabular form, by legislative text, after a reference to the conditions for granting each of them.

2.1. Legislative Decree 1297/1972

Applicable cases

- Merger or transformation (not division) of any type of company into a public limited company (PLC) or for the purpose of creating a PLC

- Merger or conversion of enterprises of any form (other than a public limited company) into a private limited company (P.L.C.) or for the purpose of creating a P.L.C.

- The company resulting from the transformation must have at the time of its incorporation a paid-up capital of at least €293,400 (if a limited liability company) and €146,735 (if a limited liability company)

- The shares corresponding to the value of the assets contributed must be nominal and non-transferable at 75% for a period of five years from the completion of the merger (the same applies to shares in an SPE)

- The company resulting from the transformation must not be dissolved within five years of the completion of the transformation. Otherwise it will have to pay all the taxes and fees from which it was exempted. 2.2. Law 2166/1993

    Applicable cases

- Conversion or merger of undertakings into a joint stock company or a joint stock company, absorption of undertakings by a joint stock company or a joint stock company, merger of several joint stock companies, division of a joint stock company if the division results in companies being absorbed by a joint stock company, contribution of a branch to a joint stock company.

- The company resulting from the transformation must have at the time of its incorporation a paid-up capital of at least €293,400 (if a public limited company) and €146,735 (if a private limited company)

 2.2. Law 2166/1993

Applicable cases

- Conversion or merger of undertakings into a joint stock company or a joint stock company, absorption of undertakings by a joint stock company or a joint stock company, merger of several joint stock companies, division of a joint stock company if the division results in companies being absorbed by a joint stock company, contribution of a branch to a joint stock company.

- The company resulting from the transformation must have at the time of its incorporation a paid-up capital of at least €293,400 (if a public limited company) and €146,735 (if a private limited company)

 3. Instead of an epilogue

As can be seen from the above presentation, contrary to the coherence and clarity now displayed by the institutional framework regarding the conditions and the procedure for the implementation of transformations (i.e. Law 4601/2019), the tax incentives provided are reflected in several pieces of legislation, each of which sets its own conditions for the granting of incentives. For this reason, a careful analysis of the tax framework is needed before deciding to carry out a transformation. In order to rationalise the relevant tax provisions, the explanatory memorandum to Law No. 4601/2019 states that the tax legislator will "reassess the current tax incentive regime for corporate transformations, through, on the one hand, their rationalisation and, on the other hand, their full alignment with the system of the proposed bill". Until this happens, however, companies undergoing transformation will have to consider whether and to which incentive regime they can be subject and under what conditions.