The Independent Public Revenue Authority (IPRA) is moving forward with key changes to the terms and conditions for granting tax compliance certificates—especially when such certificates are required to receive payments from the government, as well as for the transfer of real estate with suspended tax debts—are being implemented by the Independent Authority for Public Revenue (IAPR).
A circular issued by the Authority’s Director, George Pitsilis, introduces mandatory offsetting of claims that taxpayers have against the State against their personal debts, as well as against debts they have inherited from deceased relatives or against their spouses’ income tax debts.
In any case, the changes apply to taxpayers who apply for a Certificate of Tax Compliance and who are evidently guarantors for individuals liable for the debts of legal entities.
The Tax Administration also provides clarifications and examples for cases involving the transfer of real estate or the creation of real rights, as well as for debts subject to a suspension of collection.
Specifically, it clarifies issues concerning the joint and several liability of managers, shareholders, and partners for corporate debts owed to the State, while it sets forth the conditions for issuing a tax compliance certificate in cases of collection of funds by the State, as well as the procedure for offsetting claims against debts owed to the Tax Authority.
The Rules
Case of real estate with overdue debts under suspension: If a taxpayer wishes to sell real estate or establish a real right, such as a mortgage or usufruct, while having overdue debts with suspended collection exceeding 50,000 euros, the basic rule is that 50% of the sale price is withheld, provided the sale price is not lower than the property’s assessed value. The withholding applies up to the amount of the total debts.
However, a more favorable provision applies when the debts are suspended due to a court ruling or a decision by the Dispute Resolution Directorate (DRD). In this case, the withholding rate may be reduced from 5% to 50% of the sale price, provided that the remaining debt is secured by guarantees or collateral, such as a mortgage on another property. For collateral, 80% of the assessed value of the property offered as security is taken into account.
Example: Suppose a taxpayer sells a property for 100,000 euros and has an overdue debt of 80,000 euros that is currently suspended due to a Tax Court decision. Under the basic rule, 50,000 euros—that is, 50% of the sale price—will be withheld. However, if the taxpayer provides adequate security for the remaining amount, the withholding may be reduced to 5%, or 5,000 euros. Thus, the taxpayer receives a larger portion of the sale price, but the government is protected through the guarantee.
Transfer of real estate by a jointly and severally liable person: For persons who are jointly and severally liable for the debts of a legal entity—such as managers, board members, or shareholders—their percentage of ownership in the legal entity is significant.
If the person held a stake of up to 5% in an unlisted company or up to 0.5% in a listed company during the last two years of their term, and the debts have been legally settled—that is, restructured or suspended—then these debts are not taken into account when calculating the withholding tax.
Conversely, if the ownership percentage exceeds the above limits, the debts are taken into account. For overdue debts that have been restructured, a withholding tax ranging from 7% to 70% of the consideration may be applied, provided that the remaining debt is secured.
For debts subject to a suspension of collection, the percentage may range from 7% to 50%; however, if the suspension is due to a court ruling or a decision by the Debt Settlement Board (DED), the more specific rules of the first category apply.
Example: Suppose a former company manager wants to sell a property worth 80,000 euros. He is jointly and severally liable for the company’s settled debts amounting to 60,000 euros. If he held a 4% stake in the company, these debts are not taken into account for withholding tax purposes, provided they have been legally settled. However, if he held an 8% stake, then the debts are taken into account and a withholding may apply, e.g., ranging from 7% to 70% of the purchase price, depending on the collateral.
Certificate in lieu of a clearance certificate
In some cases, a certificate of good standing is not issued, but rather a debt statement. This occurs mainly when there are outstanding debts that are past due or when the amount to be withheld exceeds the purchase price of the transfer.
The statement of debt indicates which debts exist and allows the transfer to be completed only under specific conditions, usually involving the withholding of a larger amount. For jointly and severally liable parties, the settled debts of a legal entity in which they hold a stake—up to the prescribed low thresholds—are not listed on the certificate, unless the applicant specifically requests it. However, if the debts are not settled, they are listed.
Example: If a taxpayer wishes to sell real estate but has outstanding debts of 120,000 euros as a jointly liable party. Since the debts have not been settled, the taxpayer cannot obtain a standard certificate of good standing. A debt certificate is issued, stating the amount of 120,000 euros.
100% Withholding
In cases where funds are collected by the government, under the general framework, debts that are not yet due are not taken into account for withholding. An exception applies when offsetting is used, particularly when the taxpayer has a claim against a central government agency and, at the same time, has confirmed debts to the government. In such cases, up to 100% of the amount to be received may be withheld, up to the amount of the taxpayer’s debts.
Example: A professional is set to receive 3,000 euros from a ministry and has a confirmed debt of 700 euros. If the conditions for offsetting are met, 700 euros will be withheld, and the professional will receive the remaining 2,300 euros.