2024-07-31 09:50:47
The Ministry of National Economy and Finance plans radical changes to the system of “capital consumption”, with which taxpayers can cover additional differences in taxable income that arise based on presumptions.
This system, as implemented today, has been found to leave tax avoidance windows wide open.
Specifically, “capital depletion” enables taxpayers to invoke huge fictitious amounts of savings from past years’ income to cover presumptions.
These amounts are “built up” virtually as the current legislation does not provide for restrictions on the number of past years to which the taxpayer can refer to claim earned income that was not spent.
That is, every taxpayer has the right to go back as far as he wants and claim income of many decades, even the 70s, 80s and 90s, without any scrutiny by the tax authorities. It is enough that he has kept intact the copies of the tax return forms that he had submitted in paper form all these years, as well as being able to provide the relevant settlement notes.
So, based on the incomes declared over decades, each taxpayer can build up a huge capital of “unspent past years’ income” – a fictitious amount of savings from past years – from which they can then show each year a portion as an expense, so that in the tax return of the corresponding tax year he always covers the additional amounts of taxable income determined by the presumptions of living and any actual costs of acquiring assets that he has declared, however large they may be.
Thus, using this legal method, he can permanently avoid taxation based on presumptions. In this way, that is, every astute tax evader manages to deliberately declare a low real income and not be “caught” by the presumptions.
Only limitation
The only limitation that the legislation provides for the method of meeting presumptions through the “depletion of capital from income of past years” is that it requires the taxpayer to deduct from the total annual income of each year claimed the amounts of living presumptions and any expenses of acquiring assets that they burdened him that year.
From there, he can use the entire remaining balance as a “past year income” amount to cover presumptions. But this limitation is not sufficient to reduce the amount of fictitious savings of past years that can
relied on by the taxpayer because the subsistence allowance amounts, which are usually the only ones shown on each past year’s tax return, do not by themselves represent the taxpayer’s actual expenses each year.
Essentially, during the formation of the “capital from income of past years” the annual actual expenses incurred by the taxpayer in the same year for rent, insurance premiums, purchases of consumer goods, payments of taxes and utility bills and many other things are not deducted from the annual declared income of each year everyday expenses which actually reduce savings margins to a minimum or eliminate them!
From the income of each past year cited by the taxpayer, that is to say, as a rule, only the already predetermined amounts of living expenses provided for by the law are deducted and the huge remaining amount that remains in many cases is considered “savings”, i.e. capital that has not been spent and is used for the bypassing of the presumptions!
Remodeling plan
This system will be re-examined with the aim of reforming it so as not to allow circumvention and tax evasion phenomena. The amendments that will occur will provide, in principle:
1) Imposing a limitation on the number of past years to which the taxpayer will be able to refer and exceptions from this limitation only if there is evidence of the existence of large amounts of savings formed during a large number of years, such as e.g. details of bank account movements. It is not excluded that the number of past years, in which taxpayers will be able to look back, will be limited to 20 or 10 or even 5 years, as well as the statute of limitations for tax cases.
2) Subtraction from the annual incomes of the past years and the actual expenses of the taxpayers. The expenses that will be deducted from the annual incomes of the past years will be the actual annual expenses of the taxpayers and not just the imputed ones. Thus it will now be much more difficult to build up the huge fictitious surpluses of income and revenue that make it possible to accumulate huge fictitious amounts of “capital for consumption”.
These changes, which are estimated to close the huge tax avoidance windows that currently exist in the way the ‘capital consumption’ method is applied, will take effect from next years’ tax returns.
Useful information
For the correct way of “forming” the “capital” from the tax returns of previous years, taxpayers should know, in particular, the following:
To determine the “capital” based on the tax return of each previous year, the actual incomes that have been taxed or legally exempt from tax, the amounts of money that have been acquired but are not considered income, the amounts of money that come from the sale of assets, from the importation of funds from abroad, from loans, donations, parental benefits, etc., as well as any
another amount that has been proven to have been collected.
From the sum of all these amounts of income and receipts must be deducted the amounts of subsistence allowances for residences, cars, boats, swimming pools, servants and private school fees, as well as the expenses incurred for the acquisition of assets, for donations or parental benefits of monetary amounts and for the repayment of loans.
The amount remaining after deducting the above costs is the “unspent capital” that the taxpayer can claim for each year.
No limitation
There is no time limit for the coverage of the presumptions with “consumption of capital”. Therefore, “capital consumption” of any previous years (ie: 5, 10, 20, 25 or even 30 and 40 years) can be invoked to cover presumptions. The E1 forms of the tax declarations and the settlement notes for tax years for which the statute of limitations has expired are full proof of the amounts stated in them without requiring the presentation of other supporting documents.
That is, the taxpayer can this year claim incomes and revenues that have been declared in tax returns and reflected in settlement notes for many tax years before 2018, which are now considered time-barred, without requiring the presentation of supporting documents for the amounts stated in the settlement notes.
However, the data of tax declarations that are not listed in the statements will be taken into account only after cross-checking.
Also, in the event that a taxpayer invokes funds from previous tax years for the purpose of consumption and in the end they are not used or a part of them is used, they are considered unused and can be used in the future as funds to cover an added presumptive difference.
The taxpayer can find declarations and settlement notes of past years in his account in the TACHISNET system where the E1 forms that have been submitted and the settlement statements that have been issued for the years 2002-2022 (declaration submission years 2003-2023) are registered in electronic form ).
Status writing
For the “formation” of the “capital”, the taxpayer must draw up on paper or in an electronic EXCELL program a “statement of capital consumption”, a table format with at least three rows and with a number of columns equal to the number of past years to which it refers , plus one more column for the sum totals of all years.
In the first row of each column he must enter the income and receipts he declared in the tax return for each year, in the second row the amounts of the deductions for the same year and in the third row the remaining “capital” that can be invoked for the same year.
In the last column of the table should be written, as sums, in the first row the total amounts of income and revenues of all past years that the taxpayer cites, in the second row the total amounts of presumptions deducted from the incomes and revenues of all years and in the third row the total remaining “capital to spend” from all past years.
This year’s tax returns
The method of covering presumptions through “depletion of capital of past years” has been available every year to taxpayers who want to avoid overtaxation due to presumptions.
As we have already mentioned, with the “capital depletion” method, each taxpayer can cover any additional difference in taxable income that arises due to the application of the presumptions (due to the fact that the presumptive income determined by the tax authorities based on the presumptions of subsistence and the presumptions acquisition of assets is greater than declared income), citing income and income declared even many years ago.
Flashback
In particular, he can refer to the tax returns of previous consecutive years (as many years as he wants) and take the following actions:
a) Sum up the amounts of all types of income (from wages, pensions, allowances, rents, businesses, interest on deposits, dividends, capital gains from the sale of shares, etc.) and the amounts of income from asset sales and from any other sources (collected sums of lump-sum insurance fund benefits, winnings from lotteries, donations received, etc.) which he has entered in the declarations of the past years.
b) From the sum of incomes and revenues of previous years, which will result, to deduct the amounts taken into account in the same tax returns as living expenses (for residences, cars, swimming pools, boats, service personnel, etc.) , as well as the amounts he declared in the same declarations that he spent to acquire assets (real estate, cars, boats, movable objects of great value, etc.).
The net amount that will result from the above mathematical operations is the “capital” of the previous years that the taxpayer can “form” and show to the tax office as a savings product until the end of 2022.
From then on, in any case, from the “fund” that will be formed in this way, the taxpayer can argue that he “spent” within 2023 a part or the whole of the “fund” to cover the additional income difference which will specify the presumptions in his statement this year. That is, he can claim that the additional difference in imputed income of his tax return was covered by “using up” a part of the “capital” which he had left over from the previous years and which is obtained on the basis of the declarations of the previous years, as we described earlier.
Register
The taxpayer must then declare the “spent” part of the “capital” in table 6 of the tax return, either in code 787 (which concerns himself) or in code 788 (which concerns the spouse), and in the manner this to cover the additional difference of presumptive income that arises based on the presumptions, so in this case the tax office will not take into account the presumptive income, but the much lower declared income, as taxable income. (The amount to be entered in one of these codes should be greater than the additional income difference due to presumptions, in order to fully cover the income difference resulting from the presumptions).