Greece

Baronsmead warns asset managers of ‘billion dollar’ liability to Greek bonds

Specialist hedge fund insurance broker Baronsmead Partners has issued a warning to the non-domiciled fund management industry over tax liabilities, especially those with significant capital invested in Europe.

Baronsmead has been closely monitoring the tax situation in Greece and across Europe advising clients on potential liabilities coming to the fore. 
 
A note from the Hellenic Ministry of Finance last month announced that any gains derived by non-resident owners of government and corporate bonds would have to be declared to the Greek tax authorities and would be subject to a tax rate of 33 per cent for legal entities and 20 per cent for solitary investors.
 
Industry estimates predict that perhaps as much as USD1billion has been invested since 2012 in Greek corporate bonds and is therefore at risk from tax liability exposure. While fears over an immediate implementation seemed to have been calmed following a subsequent announcement on 15 May, there is still uncertainty around how the Greek tax authorities plan to deal with the tax liabilities in the longer term and as such investors remain concerned.
 
Baronsmead work with a number of fund managers who have expressed their concern with the situation in Greece as well as the potential for other European countries to follow suit. With strong ties to tax experts across Europe, Baronsmead believe that these exposures remain a genuine threat to investors.
 
Tax authorities across Europe have long since been wrestling with whether to pursue outstanding tax liabilities of non-resident funds  but the potential for the authorities to impose a retroactive tax remains very real. It is entirely possible that the recent activity in Greece will stimulate other jurisdictions to decide on a path of action which potentially could leave the asset management industry with huge tax liabilities.
 
David Heathfield, partner and general counsel at Baronsmead, says: “Having first proposed a retroactive tax for gains made on Greek corporate and government bonds, the Greek authorities then released a circular seemingly revoking the measure. It remains unclear but if that is Greece’s final position, the industry shouldn’t consider this a dodged bullet but a shot across the bows. The retroactive tax issue has been a dark cloud on the horizon for a few of years now and continues to create significant financial uncertainties for many of our clients.
 
“We have been advising our clients that there are insurance options available to protect them against their potential exposures. If other jurisdictions do decide to clarify their intent, the tax liabilities facing the investment industry could be enormous. Now is the time for asset managers to prepare themselves and make sure they’re protected.”

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