September 2025
V. Tolia - Conditions for Suspension of Enforcement Actions by the State in Tax Disputes
Vassiliki Tolia, LL.M.
Legal Insight
January 2026
George Kefalas, LLM mult., MSc., PgCert
Summary: In a previous article we set out the tax incentives for corporate transformations provided under Law 5162/2024, which largely attempted to unify the relevant provisions. In this article, following the issuance of Circular E. 2088/2025, we focus more specifically on the issue of whether capital gains arising from the revaluation of assets contributed to the recipient company, or (in the case of a conversion) retained by the company under its new legal form, are subject to tax.
In a previous article (see here) we examined the tax framework for corporate transformations as shaped by Law 5162/2024 (see here). On 10 October 2025 Circular E. 2088/2025 was published – “Provision of guidance for the application of the provisions of Part D of Law 5162/2024, relating to tax incentives for transformations” – which clarifies certain points of the provisions.
Based on the provisions of this Circular, this article addresses in particular the issue of whether capital gains arising from a corporate transformation, as a result of valuation of assets contributed to the recipient or retained by a converted company in its new legal form, are subject to income tax.
It should be recalled that, as clarified in Circular E. 2088/2025, the provisions of Law 5162/2024 do not impose or require a valuation of assets and liabilities in the context of a corporate transformation. Whether a valuation obligation arises depends on the provisions of Law 4601/2019 and company law (and the legal form of the companies involved in the transformation). For example, in a merger by absorption or formation of a new company, where the recipient company is a public limited company (A.E.) and increases its share capital, a valuation of the transferring company must be performed under Article 17 of Law 4548/2018. In such a case, capital gain may arise if the value of the contributed assets in the Article 17 valuation report exceeds their book value in the transferring (absorbed) company.
As explicitly provided in Article 50 of Law 5162/2024: “The capital gain arising from a merger, division or conversion shall not give rise to a tax liability for the recipient company or, in the case of a conversion, for the company under its new legal form.” This is achieved as follows: the assets and liabilities transferred by virtue of universal succession to the recipient company are recorded in its books (tax base) at the same tax value they had immediately before the transformation in the transferring company’s books. The same applies in a conversion: the assets and liabilities retained by the company in its new legal form are recorded in the legal entity at the same tax value they had immediately before the conversion.
This mechanism is the “roll‑over” or “carry‑over” of tax basis, under which the balance sheet items of the transforming companies remain unchanged for tax purposes after the transformation.
In this way, income tax liability is avoided at the time of the transformation and tax neutrality is ensured. Thus, the recipient company presents the contributed assets in its tax base at the same values they had in the transferring company’s books prior to the transformation, while in its accounting base the contributed assets are recognized at the valuation amounts that may have resulted from any valuation carried out.
Consequently, capital gains arising from a possible valuation within the context of a corporate transformation are not subject to income tax at that time. But is this a definite exemption or a deferral of tax? As emerges from the explanatory memorandum to Article 50 of Law 5162/2024 and is clarified in Circular E. 2088/2025, this is a deferral of taxation, because such capital gains will be taxed in the future when a taxable event occurs. A taxable event is, for example, the transfer of the contributed asset by the recipient to a third party. “Transfer” means both the actual transfer of the asset and the dissolution of the recipient company. However, further transformation of the recipient company does not constitute a taxable event.
To ensure the possibility of future taxation of the deferred gain, Circular E. 2088/2025 provides that “the values of the assets as they stood for the purposes of monitoring the tax base immediately before the transformation must be readily discernible from the recipient company’s books,” and in such case any depreciation in the tax base that occurred from the time of the transformation to the date of the taxable event will be taken into account.
At the same time, it is clarified that in the event of capitalization of all or part of the net position of the contributed capital, the provision of subparagraph (b) of paragraph 1 of Article 47 concerning taxation on capitalization or distribution of reserves or profits for which tax has not been paid does not apply (see explanatory memorandum to Article 50 and Circular E. 2088/2025).
Furthermore, no dividend withholding tax is imposed under Articles 35, 36 and 40 of the Income Tax Code (KFE), which also follows from the general wording of the law on non‑taxation of capital gains at the level of the recipient company.
A special case of capital gain taxation arising after a corporate transformation is provided in Article 71B(6) of the Income Tax Code (KFE). This provision applies exclusively to public limited companies (A.E.s), whether listed or not, that have formed reserves from capital gains on shares deriving from the spin‑off of a business unit of a company or from mergers of companies in which they participate.
In these cases, as provided in POL 1145/2018, the provisions of Articles 62 and 64 of Law 4172/2013 will apply to the extent that Article 71B does not state otherwise (see also POL 1042/26.1.2015), i.e., dividend withholding tax will be withheld.
This applies where a public limited company that has formed reserves from capital gains on its participations (as an asset) – due to a merger or spin‑off of a company in which it participates, whether under general company law, the Development Law 1297/1972, or under Article 54 of Law 4172/2013 (KFE), in which capital gain may arise from valuation of contributed assets – capitalizes those reserves by distributing new shares to existing shareholders at the completion of the transformation without paying income tax.
Therefore, in this context the company is not the one participating in the transformation itself, but rather one that holds participations in another company that participates in the transformation – a situation that should in no case be confused with the general case described in section 2 above.
Under the provisions of Law 5162/2024, no taxation of capital gains arises for the recipient company at the time of the transformation. This covers all forms of taxation and all types of corporate transformations. This should not be confused with the capital gains on participations of a public limited company due to a merger or spin‑off of a business unit in which it participates, where withholding tax on dividends may arise in the event of capitalization of such gains.
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