Inseparably linked to the Income Taxes Act (“ITA”) is the official instruction of the General Financial Directorate (“GFD”) on a uniform application of certain ITA provisions. Currently, guidance D-22 ref.no. 5606/15/7100-10 of 6 February 2015 is in force. However, there have been many substantial changes to the ITA since 2015 that must be reflected. That is why the issuance of a new or updated text that would interpret the ITA in a uniform manner is currently being negotiated.
It should be noted at the outset that the instruction represents the GFD’s internal methodology for individual tax administrators. It is thus a so called administrative practice that shall be binding for tax administrators. Therefore, if the taxpayer follows the instruction, its tax treatment should not be contested by a Tax Office.
Let us take a look at the changes to be included in the new guidance:
From the perspective of personal income tax, probably the biggest change relates to the new concept of the lump-sum tax. The lump-sum tax methodology has, until now, been completely left out of the instruction, which is why a significant part of the changes is devoted to it. The instruction further deals with a rather complicated application of transitional provisions dealing with the extended time test for the tax exemption of income from the sale of a family house or a flat and the reduced deduction of mortgage interest. The term “procurement of housing needs” will also be clarified. The text should also include the well-known opinion of the GFD on the financial meal contribution to employees. The instruction is therefore primarily complemented as a result of missing amendments from recent years, without changing the current interpretations. However, there are some minor additions that may be, in certain situations, very important, such as the determination of the value of property acquired free of charge or the fact that social assistance provided by the employer from the cultural and social needs funds to the employee’s immediate survivors is also regarded as tax-exempt income.
In the instruction, corporate income tax is complemented by the methodology issued in connection with the implementation of Council Directive (EU) 2016/1164, laying down rules against tax avoidance practices that directly affect the functioning of the internal market (ATAD Directive). The useful statement may be that property with permitted trial operation may, subject to certain conditions, be depreciated, unlike the property with the premature use permission.
The newly proposed wording of the instruction on the ITA interpretation is currently subject to a discussion with a professional public. It is thus not clear yet when the text will be finished and in what form. We will inform you about its publication and approved changes.