Foreign companies investing in Greek government bonds may be entitled to receive interest free of Greek withholding tax, but getting money back when tax is withheld incorrectly can prove more complicated than the exemption itself.
A recent case involving a foreign company and more than €470,000 in withholding tax highlights the procedural risks facing international investors in Greek sovereign debt, even when the underlying tax rules appear to be in their favor.
The case, reviewed by Greece’s Directorate for Dispute Resolution, involved a foreign company with no Greek tax identification number or permanent establishment in the country. The company held Greek government bonds through a custodian and received interest payments during the 2020 through 2023 tax years.
A 15% tax was withheld from those payments, amounting to €470,049.75, and remitted to the Greek state by the custodian.
The problem: Under the Greek tax framework examined in the ruling, interest earned on Greek government bonds and Treasury bills by foreign legal entities that aren’t tax residents of Greece and don’t maintain a permanent establishment there is exempt from withholding tax.
That meant the company had grounds to argue that the €470,049.75 shouldn’t have been withheld in the first place.
Recovering the money, however, proved to be a different matter.
Because the tax had been withheld and paid to the Greek authorities by the custodian rather than directly by the foreign investor, the refund process depended not only on whether the investor was legally entitled to an exemption but also on who had formally remitted the tax and who therefore had the right to claim its return.
The foreign company sought either a direct refund of the €470,049.75 or, alternatively, repayment to the custodian, which could then transfer the funds to the company.
The custodian eventually submitted a declaration assigning its right to the refund and consenting to the money being paid directly to the foreign investor. But that declaration came after the refund request had already been submitted and initially reviewed, complicating the administrative process.
Greece’s Directorate for Dispute Resolution found that the foreign company’s underlying claim had a legal basis. The dispute, however, had effectively become a procedural matter involving the relationship between the beneficial owner of the interest income and the custodian that had withheld and remitted the tax.
The directorate ultimately dismissed the company’s administrative appeal as inadmissible, concluding that there was no enforceable administrative act that could be challenged through that particular appeals procedure.
The case illustrates a potential trap for institutional investors entering the Greek government-bond market. Eligibility for a tax exemption doesn’t necessarily prevent tax from being withheld at the payment stage, and establishing the right to a refund after the fact can involve a separate set of procedural requirements.
For foreign investors, the distinction is particularly important when bonds are held through custodians or other financial intermediaries. If tax is withheld incorrectly, the identity of the entity that formally remitted the money to the Greek authorities can determine how a refund must be pursued.
The issue comes as Greek sovereign debt has regained prominence among international investors following the country’s return to investment-grade credit ratings after more than a decade marked by the eurozone debt crisis and financial restructuring.
