Efficient wealth planning for Greek residents in today’s world

Corporate wealth planning solutions such as offshore shell companies and holding structures are under increasing scrutiny in many countries. The absence of substance and economic rationale in these structures make them a target by governments and tax agencies. These solutions are increasingly perceived as mere tax avoidance tools to exploit gaps and mismatches between different countries' tax systems and to illegitimately reduce the taxable base of taxpayers in their country of residence. Wealth planners and private wealth advisors are in the search of planning solutions which remain flexible yet contain the required substance and rationale as robust solutions with an efficient tax treatment.

BEPS (base erosion and profit shifting) and ATAD (anti-tax avoidance directives) developments at OECD and EU level are examples of this trend, as well as the EU Unshell initiative “to prevent the misuse of shell entities for tax purposes”. Greece is not an exception to this trend. By virtue of Ministerial Circular E.2018/2022, the Greek tax administration provided detailed clarifications in relation to the scope and implementation of the special anti-abuse rule contained in article 66 of the Income Tax Code for the prevention of tax avoidance by Greek resident companies and individuals using Controlled Foreign Corporations (CFC).

In short an offshore company qualifies as a CFC according to Greek legislation when (1) the Greek resident ultimate owner and any related parties hold more than 50% of the company, (2) the company’s income is composed in more than 30% of passive income and (3) the tax due in the jurisdiction where the company is based represents less than 50% of the tax that would have been paid if the company was Greek. If the company thus qualifies as a CFC, the Greek resident owner needs to include within his/her Greek taxable income the non-distributed income realised by the CFC.

One of the aspects Circular E.2018/2022 clarifies is that it is no longer decisive (for an offshore company to qualify as a CFC, and therefore be tax-transparent for Greek tax purposes) whether the jurisdiction where the company is based has nominal corporate taxation which amounts to more than 50% of that in Greece, but whether the tax effectively paid by the company in said jurisdiction represents at least 50% of the tax that would have paid according to Greek tax legislation. Thus, jurisdictions which traditionally were a safe harbour might not be it anymore if the tax effectively paid by the company does not meet in practice the minimum threshold.

Another aspect the Circular covers is the fact companies which exercise substantial economic activity supported by personnel, equipment, assets, facilities etc. shall not be considered CFCs. But it is clarified the taxpayer bears the burden of proof that the CFC performs substantial economic activity if the company is not based in an EU/EAA Member State.

In parallel to the increasing scrutiny to these corporate solutions the automatic exchange of information, no longer just upon request, has become the norm with the implementation of CRS by the vast majority of countries, including traditional financial havens. Financial information of these holding companies is annually shared with the countries of residence of those individuals ultimately controlling those entities. This high level of information received by the jurisdictions where the ultimate owners reside, together with the increasing scrutiny and stricter rules around these solutions, make it advisable??for wealth planners and private wealth advisors to review how their clients’ wealth is structured.

A wealth planning solution which is increasingly being used for Greek residents is unit-linked life insurance issued by Luxembourg international insurers. This solution is not merely used to obtain tax advantages (e.g. deferral) only, but it is primarily a succession planning tool which is also tax efficient. It takes the form of a life insurance policy which offers a savings platform. It allows clients to invest assets and build diversified portfolios (a)?managed by a professional investment manager of his/her choice according to the client’s investment profile and chosen strategy and (b)?held in custody at the bank of the client’s choice. The client keeps the right to withdraw funds from the policy at any time and can freely appoint beneficiaries to receive the policy proceeds upon the death of the life/lives assured.

The primary benefits that this solution provides to Greek residents are:

Succession planning

• Beneficiary clauses can be drafted to ascertain the sum, when, how and to whom the wealth should be distributed, and to efficiently manage complex situations involving (i)?heirs that are legally incapacitated, or not yet at maturity, or (ii)?divorced clients and/or with children from differing partners.
• In the event of death, it provides the beneficiaries with a cash injection to bridge the gap until the estate is settled and/or to pay any applicable Inheritance and Gift Tax payable by Greek resident beneficiaries.

Asset protection

• Luxembourg life insurance contracts with international custody options offer protection against potential country-related risks.
• Luxembourg’s “Triangle of Security” ensures the assets underlying the policy are segregated and safeguarded with a preferential right in case of financial issues with the custodian bank or the insurer.

Investment flexibility

• Unit-linked life insurance policies issued by Luxembourg insurers can hold a broad variety of assets, including real estate investments, hedge funds, private equity and unquoted assets in general.

Long-term and tax-efficient solution

• Luxembourg-based unit-linked life insurance is an established and internationally recognised tool for wealth preservation, firmly embedded in the legal systems of countries across the world, including Greece. It is a robust succession planning tool which ensures Personal Income Tax deferral.
• Also, from a regulatory and tax perspective it is a preferred vehicle supported by a number of governments to incentivise long-term savings.

International portability

• The solution can be designed and further adapted to the unique requirements of internationally mobile clients and/or their beneficiaries in case they need to move to another country, to meet the local requirements of the jurisdiction(s) involved.
• Luxembourg unit-linked life insurance is an efficient succession and wealth planning solution for Greek residents benefiting from the Greek ‘non-dom’ tax regime .

In sum, a Luxembourg unit-linked life policy offers a legal, tax-efficient, adaptable and long-term wealth structuring solution for Greek clients while provides the substance wealth planning tools require in today’s world.