The Tax Clearance Certificate and the Certificate of Debt - the Super Weapons of the State for Rapid Collection of Its Claim

Legal Insight

September 2024

Stelina Mandalou, LLM

Summary: As is known, the submission of a tax clearance certificate has been legally established as a prerequisite for completing various types of transactions, even when the State is not involved as a contracting party (such as in property transfers). This ensures that non-compliance with tax obligations can effectively "block" an individual's transactional life. The lifting of this impediment is primarily possible by the State collecting part or the entirety of its claim (as in the case of issuing a debt certificate), thereby transforming the institution of tax clearance into the most important means of collecting public revenues. This article will therefore examine some basic issues related to the issuance of the tax clearance certificate.

1. Introduction

The tax clearance certificate (hereinafter T.C.C.) and the debt certificate are succinctly provided for in Article 12 of the Tax Procedure Code (Law 5104/2024 - hereinafter T.P.C.). This provision states that the taxpayer can request a tax clearance certificate, valid for up to two (2) months, to carry out acts and transactions expressly defined, which is granted provided that the taxpayer does not have debts against the tax administration for any reason (or, according to paragraph 3 of the same article, against another public sector authority that uses interoperability services, such as municipalities and regions, see A.1127/2024) and has submitted the required tax returns for the last five (5) years.

However, this provision does not provide detailed rules on certain specific issues, such as the transactions for which a T.C.C. is required or the debts considered for its issuance, etc. The joint decision of the Minister of Finance and the Governor of the Independent Authority for Public Revenue (IAPR), which specifies these issues, is currently Decision No. A. 1162/2023 of the Deputy Minister of National Economy and Finance and the Governor of the IAPR, as amended and in force with Ministerial Decision A. 1047/2024.

Furthermore, paragraph 6 of Article 12 of the T.P.C. provides for the debt certificate, which is submitted instead of the T.C.C. (in cases of receipt of funds from the State or property transfer) when the conditions for its issuance or the conditions for offsetting do not apply. In the case of the debt certificate, practically, from the amount received from the State or from the consideration of the property transfer, the entire amount of the debt owed to the State is paid to the tax office. Thus, for example, if the debt to the State is €40,000 and an amount of €10,000 is received from the State, the entire amount received will be allocated to the tax office for the issuance of the debt certificate, thereby making the completion of the specific transaction possible.

2. Conditions for the issuance of the tax clearance certificate

Initially, according to Article 3 of Ministerial Decision No. A. 1162/2023, to be granted a tax clearance certificate, the applicant must cumulatively:

(a) Not have total overdue basic debts exceeding thirty (30) euros registered with the Tax Administration. If there are total basic overdue debts exceeding the aforementioned amount, the applicant must have settled them by means of a suspension of collection (e.g., based on a ministerial decision, law, etc.) or by installment payment arrangement (a category that includes the out-of-court debt settlement mechanism, pursuant to Article 23(d) of Law 4738/2020 – see also E.2065/2022, specifically for the out-of-court mechanism), and

(b) Have submitted the tax returns of the last five years, namely income tax returns and Value Added Tax (VAT) returns, the deadline for which has expired one month before the application date for the issuance of the tax clearance certificate. An order to withhold the certificate is also registered in case of non-submission of payroll tax returns, ENFIA, FAP, and property data for the last five years.

3. The withholding condition for issuing the tax clearance certificate

As mentioned earlier, if the taxpayer has debts to the State but has included them in a debt settlement program (which is maintained), or they are not overdue or under suspension of collection, a limited-validity tax clearance certificate may be issued, which cannot exceed one (1) month. However, if the reason for issuing the T.C.C. is the collection of money from the State or the transfer of property or the creation of a real right on the property for a consideration (e.g., the establishment of horizontal ownership for a fee), the withholding of part of the amount collected is mandatory.

Thus, Article 8 of the same decision provides for the calculation method of the withholding percentages, depending on the reason for issuing the T.C.C. Based on this provision:

(a) When the reason for issuing the T.C.C. is the collection of money from the broader public sector (such as legal entities under public law, local government organizations, etc., and not from central government bodies) and the taxpayer has regulated overdue debts, the following amounts are withheld:

Ten percent (10%) of the amount collected, if more than seventy percent (70%) of the regulated debt has been paid through the arrangement. The same rate applies in the case of periodic claims, i.e., when more monetary amounts are expected to be collected from the same entity in the future (e.g., due to signing a public contract) for a total remaining regulated debt of up to twenty thousand (20,000) euros, while if the debt exceeds this amount, ten to thirty percent (10% – 30%).

Thirty percent (30%) of the amount collected, if more than fifty percent (50%) up to seventy percent (70%) of the regulated debt has been paid through the arrangement,

Fifty percent (50%) of the amount collected, if more than thirty percent (30%) up to fifty percent (50%) of the regulated debt has been paid through the arrangement,

Seventy percent (70%) of the amount collected, if up to thirty percent (30%) of the regulated debt has been paid through the arrangement.

For example, if the taxpayer has an overdue debt to the State of €15,000, which has been included in an installment payment arrangement, within which €9,750 has been paid, 65% of the regulated debt has been paid through the arrangement, and thus 30% of the claim collected will be withheld.

However, as of 23.10.2023, new provisions apply concerning the possibility of increasing the above rates, with criteria primarily whether the applicant is a natural or legal person/legal entity and, in the latter case, the type of accounting system maintained. Thus, for example, in legal entities maintaining a double-entry accounting system, if the ratio of the amount of the balance of the debt that can be withheld to the average EBITDA of the last three years is greater than two (2) or the average EBITDA of the last three years is negative, a ten percent (10%) increase in the above rate will be applied.

In the first example, if the applicant for issuing the T.C.C. is a public limited company with EBITDA 2023: €11,000, 2022: €6,000, and 2021: – €13,000 (the average of which is therefore €1,333.33) and the balance of the debt not settled through the arrangement is (€15,000 – €9,750 =) €5,250, the ratio of the balance of the debt to the average EBITDA (5,250/1,333.33) will be 3.93 (i.e., greater than 2) and therefore an increase of the above withholding rate by 10% will occur. Therefore, in our example, 40% of the claim collected will be withheld instead of 30%.

In any case, if the applicant for the issuance of the tax clearance certificate submits zero income and VAT returns in the two years preceding the application, an increase of 15% will apply. However, it is clarified that if a taxpayer falls into more than one of the defined categories for an increase, the higher percentage of increase will be taken into account. This means that these increases (10% and 15%) are not cumulative, but only the higher one will apply (15%).

The amounts withheld must correspond to covering at least two installments of the maintained arrangement following the date of submission of the application for the issuance of the certificate, provided that the remaining installments are up to twelve, while if they are more than twelve, four installments must be covered. In the aforementioned case of periodic claims, with a remaining regulated debt exceeding twenty thousand (20,000) euros, one installment of the maintained arrangement must be covered.

(b) When the reason for issuing the T.C.C. is the collection of money from Central Government bodies (e.g., Ministries, Military Hospitals, etc.) and the conditions for offsetting apply (Article 83 of the Public Revenue Collection Code - PRC), the total withholding rate is mandatorily 100% of the amount collected and up to the amount of the certified debts (overdue and non-overdue, as well as under suspension of collection), according to POL. 1141/2016.

It is clarified that for the lawful conduct of the offsetting, it is sufficient for the mutual claims to be certain and settled, i.e., not subject to dispute, determined in terms of their amount and cause, and proven by final court decisions or public documents. Specifically, the claim asserted for offsetting should not be under judicial dispute in a manner that renders the legal title dormant. Such a case exists when, following the filing of an objection by the taxpayer to annul the fiscal certification of their debt, a stay has been granted by the court for reasons relating to the apparent validity of the main.

For example, if the reason for issuing the T.C.C. is the receipt of a fee from a project contract amounting to €20,000 from the 401 General Military Hospital of Athens, and the applicant has certified overdue debts of €40,000, under regulation, then to issue the T.C.C., the total fee of €20,000 must be mandatorily withheld since military hospitals belong to Central Government bodies. However, if the applicant for the T.C.C. has challenged the said debt in court (through an objection to the fiscal certification) and, following their application, a stay has been ordered by the court due to the apparent validity of their objection (i.e., it is anticipated that some reason for the objection will be accepted), then the public claim cannot be considered certain and settled, and therefore the conditions for offsetting do not apply, nor does the above provision (the above-mentioned withholding rates will apply depending on the progress of the arrangement).

(c) When the reason for issuing the T.C.C. is the transfer of property or the creation of a real right on it for a consideration:

Seventy percent (70%) of the consideration, provided that the consideration is equal to or greater than the objective value of the property and up to the amount of the regulated overdue debts (without including overdue debts under suspension of collection that have been included in an installment payment arrangement). However, if the consideration is less than the objective value of the property, withholding of 70% is initially calculated on this consideration and if the withholding amount does not cover the total regulated overdue debts, withholding of 70% is calculated on the objective value of the property and not on the agreed consideration. A condition for issuing the certificate is that the amount of withholding resulting from the calculation of 70% on the objective value of the property does not exceed the consideration of the transfer/creation.

For example, if a property with an objective value of €130,000 is sold for €200,000 (and the seller has regulated overdue debts in which they are up to date) amounting to €50,000, the entire amount (€50,000) will be withheld from the amount collected (€200,000). However, if a property with an objective value of €100,000 is sold for €40,000, we note that the amount of withholding does not cover the total regulated debts if the 70% rate is calculated on the agreed consideration (€40,000 x 70% = €28,000 < €50,000), and therefore it will be calculated on the objective value of the property (€100,000 x 70% = €70,000). Therefore, ultimately, an amount of €40,000 will be withheld, as the withholding amount cannot exceed the agreed sale consideration.

Fifty percent (50%) of the consideration, in case of the existence of total certified overdue debts amounting to a basic debt of more than fifty thousand (50,000) euros under suspension of collection, regardless of whether they have been included in an installment payment arrangement, and provided that the consideration is not less than the objective value of the property. If the consideration is less than the objective value of the property, the above applies accordingly. The tax clearance certificate is issued digitally if this withholding covers the total overdue debts under suspension of collection.

4. Suspension of administrative enforcement by court decision

According to the above, a condition for issuing the T.C.C., in case of debts exceeding €30, is that these debts are legally settled, i.e., either included in an installment payment arrangement or under suspension of collection. Suspension of collection means, primarily, the suspension given by law or ministerial decision (e.g., Ministerial Decision A.1077/02.05.2024 on the suspension of collection of certified debts for flood victims).

What applies, however, in the case of judicial dispute of a certified, non-regulated debt against the State (e.g., by filing an objection against the fiscal certification of the debt), within which a suspension application of the debtor has been accepted? Does the suspension of execution of the fiscal certification, ordered by the court, equate to the suspension of collection of the certified debt?

If a negative answer is given to the above question, then it is not possible to issue a T.C.C. due to the State's disputed claim, which will be considered an unlawfully settled debt. Consequently, instead of the T.C.C., a debt certificate must be issued, and 100% of the amount collected must be withheld. This practically means that the State will collect part or the entirety of its claim from the taxpayer, although this is already disputed in court and a judicial suspension of the enforcement measures the State would expedite to satisfy the specific claim has been granted!

According to one view, within the concept of suspension of payment of the debt, which constitutes a lawful settlement and allows for the issuance of a tax clearance certificate, it is meant not only the administrative suspension but also the suspension of execution ordered through a court decision, following the application of the objecting debtor, which is ordered due to the apparent success of the main legal remedy (e.g., the objection) and not for reasons relating to the applicant's damage (see Council of State Plenum 3438/1998, 2001/2000, Council of State 3933/2011, Legal Opinion of the Legal Council of the State 302/2013, 262/99, Administrative Court of First Instance of Athens 3154/2014, Administrative Court of First Instance of Thessaloniki P215/2023). According to another view, however, the suspension of execution, ordered through a court decision, does not prevent the application of the withholding condition through the process of tax clearance, as the latter does not constitute a measure of administrative enforcement.

5. Judicial treatment of disputes arising from the Administration's refusal to grant a tax clearance certificate

In any case, for these disputes, an appeal can be filed before the President of the Administrative Court of First Instance (according to Article 6(2)(d)(1) of the Code of Administrative Procedure, in conjunction with Article 1(4)(c) of Law 1406/1983), requesting the annulment of the relevant negative act of the Administration (the so-called "Presidential Procedure"). The President of the Court of First Instance decides irrevocably, meaning there is no right of appeal to annul the relevant decision.

The hearing date for the appeal before the President is set within two months of the case file being submitted to the Court, and the decision is published within two months of the hearing. The decision is notified within a two-month period to the Administration, which must execute the decision within one month of the notification.

Moreover, as part of this appeal, a request can be submitted before the President of the Court of First Instance for the issuance of a temporary order, arguing an imminent risk of irreparable damage to the applicant, justifying the suspension of the contested measure (the refusal to grant tax clearance).

6. Instead of an epilogue

As evidenced from the above, the regulations regarding tax clearance are accompanied by intense legal complexity. Notably, the joint decision of the Minister of Finance and the Governor of the IAPR, provided for in Article 12(5) of the T.P.C., which specifies these issues, is constantly being amended (with the latest amendment occurring in April 2024), while for more specific matters (such as restructuring, out-of-court debt settlement mechanisms, etc.), separate ministerial decisions and circulars are often issued, making it imperative to consistently monitor all relevant legislation. However, through consistent oversight of the entire network of the aforementioned provisions and the rich case law developed around the issue of tax clearance, the successful extrajudicial (through direct communication with the Tax Administration) and judicial (through the aforementioned Presidential Procedure) handling of related cases is possible, aiming at the most beneficial solution for the taxpayer.