Our Tax Controversy & Litigation team has successfully defended, before the Administrative Court of Appeals, the right of our client to deduct interest expenses of approximately €10 million arising from an intragroup bond loan, in a landmark debt push-down case.
The case concerned a pre-merger acquisition of shares by the applicant company financed through a bond loan. The acquisition was funded by a bond loan subscribed to by the shareholders of the acquired entity. Following the acquisition, the applicant company absorbed the acquired entity.
The tax authority invoked the general anti-abuse rule (Article 38 of the then applicable Tax Procedures Code), arguing that the bond loan constituted an artificial arrangement designed to shift taxable income out of Greece through interest deductions. Specifically, the tax authority contended that the merger could have been completed without the prior share acquisition and associated borrowing, and that the transaction was circular in nature, as the loan funds ultimately returned to the lenders via the share sale proceeds.
The Court accepted our arguments and rejected the tax authority's anti-abuse assessment, delivering a particularly important decision which recognizes that the bond loan was a genuine and productive business expense, as the merger would not have been completed without the prior acquisition of the shares, which was necessary to equalize the value of the merging entities and achieve the agreed ownership split. All conditions for expense deductibility under the Income Tax Code were satisfied.
The decision is of particular importance as it affirms the taxpayer’s right to choose the most efficient structure for its commercial affairs, from both a business and a tax perspective. The tax authority cannot impose alternative hypothetical structures to deny deductibility.
Our team was led by Diana Tsourapa, partner, with the assistance of Alex Karopoulos, partner, head of Tax Controversy & Litigation, and Eva Sakellaridou, associate.