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New Greek Regulation Designed to Fight Tax Evasion Problem: Will it Work?

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The following is a guest post by my colleague, Theresa Papademetriou, who is the Law Library of Congress Senior Foreign Law Specialist for the European Union, Greece, and Cyprus. Theresa’s blog post highlights Greece’s efforts to address the country’s economic challenges by, among other actions, tackling a common problem of “unreporting” or under-reporting of taxable revenues by providers of goods and services. 

Last month, during my recent stay in Athens, I was taken aback to see a prominently-displayed sign, written in English and Greek.  It sat on the receptionist’s desk in an hotel in downtown Athens, and it read: “It is your right to walk out without paying if no receipt is given to you.”

A view of Athens, Greece; Photo taken by Theresa Papademetriou, January 2013

As it turns out, this signage was a manifestation of compliance with new legislation. The new regulation, which entered into effect on January 12, 2013, was introduced by the Ministry of Development, Competitiveness and Infrastructure and serves a twofold purpose: (a) to ensure that restaurant, shop and other business owners, as well as those who provide services, such as doctors, electricians, plumbers, hair dressers and others provide receipts; and (b) to make customers aware of their legal right to request a receipt for goods purchased or services rendered and to walk out without paying, if no receipt is given. Businesses are required to display this information on their premises.

The new measure appears to be designed to combat the pervasive phenomenon of tax evasion and rampant corruption, which it is said have plagued Greece for a long time. In November 2012, Nektaria Stamouli’s article “Greece Tries Again to Cut Tax Evasion” published in the Wall Street Journal stated that tax evasion costs Greece approximately 28 billion Euros (US $ 36 billion). A series of administrations have introduced a variety of measures with the aim of combating this practice, but to no avail. I should clarify that although tax evasion is considered common in Greece, a large number of law-abiding citizens dutifully comply with their tax obligations.

Deputy Development Minister, Athanasios Skordas, has characterized the new regulation as an essential measure for the protection of consumers and as a “bold step against tax evasion.”  Ordinary citizens, who have already suffered the effects of severe austerity measures, however, reacted to the new measure with shock and indignation. Many Greeks accuse their government of targeting the middle and lower class; they believe this population has already been unfairly treated and disproportionately affected by the ongoing economic crisis.

A recent report by the Hellenic Statistical Service (HSS) states that Greeks have become poorer in the third quarter of 2012: their available income dropped 10.6% to 33.2 billion Euros, compared to statistics collected for the same period in 2011. The report attributed this decrease to an 11.3% decline in workers’ earnings; a 10.2% cut in social benefits to households; and a 17.7% increase in income and property taxes.

Greek citizens object to the government’s focus on the low-to-middle class income earners in light of its failure to prosecute serious tax evaders–in particular, the infamous “Lagarde list.”  This list is a document provided by Christine Lagarde, the Head of the International Monetary Fund, to the then Greek Minister of Finance, George Papakostantinou.  It included the names of 2000 individuals who moved their accounts to safer banks in Switzerland, ostensibly to avoid taxes. A parliamentary investigation is currently underway regarding Mr. Papakostantinou’s alleged failure to take further action in connection with the “Lagarde list.” In addition, there is further investigation concerning the removal of his relatives’ names from the list.

Implementation of the new regulation can be problematic. Greeks are not accustomed to asking for receipts but may be enticed to do so in the future.  Businesses may continue not giving receipts unless it is specifically requested. This may give way to altercations between business owners and customers, particularly if the former refuse to issue receipts. As reported in Nektaria Stamouli’s November 2012 Wall Street Journal article  “Greece Tries Again to Cut Tax Evasion”, this issue has already been raised by Vasilis Korkidis, the President of the National Confederation of Greek Commerce.   Mr. Korkidis argued that it is wrong for a ministry to urge customers to provoke conflict between a customer and a shop owner, especially in such a tense period, when such a conflict may even end in the use of force.

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