The Ministry of Finance of Greece is worried about a complete turnaround in the government policy regarding salaries and income tax. The reason for this is the decision of the State Council (the supreme judicial institution in Greece) in favour of university teachers, which comes just days after the relevant decision in favour of uniformed staff.
The State Council considers unconstitutional the taxation of the allowances paid to university teachers and orders that the taxes levied after 8 July 2002 be refund retroactively. In particular, with decision № 29/2014, the Council determines as unconstitutional the tax on the allowance for "establishing and maintaining a library and participation in conferences" and of the allowance for research paid to the members of the academic and research staff of universities.
In 2012, the members of the second panel of the State Council had defined as unconstitutional the tax on the monthly allowance paid to university teachers for the establishment and maintenance of a library and for participation in conferences (to the amount of 2,112 euro per year) as well as the tax levied on the special allowance for post-doctoral research and for the fastest and most effective progress in research programmes (3,169.4 euro per year).
Subsequently, the case was transferred to the main panel of the Council for a final decision. It accepted the opinion of the second panel and decided that the amounts in question were no addition to the salary, i.e. income, and should not be taxed, in compliance with Article 78 of the Constitution and Article 4 of the Code for income taxation.
In addition, the State Council states in its decision that the non-taxation of these allowances is not a "hidden tax privilege" in favour of the academic staff of the universities in the country.
In particular, the decision of the Supreme State Council states the following:
"Having considered that the fixed monthly compensation for the establishment and maintenance of a library and for participation in conferences and other scientific meetings is paid to the members of the academic staff of universities to cover the costs incurred by them for the establishment and continuous maintenance of libraries as well as for their participation in scientific forums which, as we all know, is necessary in order for them to be informed of the developments in their field, with a commitment to science, research and teaching at the university, the State Council perceives these payments as compensations that cover the costs incurred in connection with the above and considers that their amount does not exceed the generally accepted reasonable amounts and therefore they do not constitute a taxable income within the meaning of Article 78, paragraph 1 of the Constitution and Article 4, paragraph 1 of the Code for income taxation, nor do they constitute a hidden tax privilege in favour of the members of the academic staff of universities. This solution is lawful and the reasons for appeal must be rejected as inconsistent."
It should be noted that the taxation of the allowances in question had started on 08.7.2002, after the enforcement of Article 12 of 3.3052/2002. The allowances in question had amounted to 176 euro for lecturers and assistants, 264 euro for associate professors and 411 euro for professors. In 2013, they were changed to 128, 184 and 273 euro respectively.
According to the decision of the Council, the state must now retroactively refund the taxes levied on these amounts for a period of 11 years. The Ministry of Finance, however, fears that other employees in the public or private sector whose allowances have been also taxed and which may be considered a nontaxable income may perceive the decision as a precedent.
Concern for the ensuing court decisions
Representatives of the Ministry of Finance declined to comment on the decision of the Supreme State Council but according to sources, it will cost several million euro as it applies to taxes levied for 11 years and it is not clear when they will be refunded and how.
The Ministry, however, is obviously concerned about the court decisions since a few days ago a decision of the State Council defined as unconstitutional the retroactive cuts of the remuneration of the uniformed staff of the army, police, and security and fire services in 2012. This decision will cost a minimum of 300 million euro and the amount could further increase depending on the scope of its application.
Meanwhile, Prime Minister Antonis Samaras said that part of the budget surplus in 2013 would be allocated to the uniformed staff, which means that the government will implement the decision of the State Council. Sources indicate that in order to limit the fiscal cost of an extended application of the decision, there will be regulations that will slow down the increase in the remuneration of uniformed personnel to the levels that the budget can take.
The budget might be able to withstand the burden of returning the remuneration of uniformed staff to the previous higher levels but it will not withstand the burden of other decisions relating to appeals, which have not yet been resolved in court.
According to sources, the court decisions related to other complaints, which will lead to higher costs if approved, have not yet been taken.
In particular, the supreme administrative court has not decided on appeals relating to the reduction of the lump sum retirement benefit of public workers but also of employees in insurance funds that do not receive subsidies from the state budget. If these appeals are approved, which is not excluded, this will result in enormous costs for the treasury, which the budget will not be able to meet without cuts in other expenses.
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