The Greek government denied reports that it had plans to impose a retroactive tax on foreign investors that purchased government bonds from early 2012 through the end of 2013.
Reuters clarified that those investors are only subject to current tax legislation for the period.
However, earlier reports cited a document showing that the nation's Ministry of Economy was planning a retroactive tax on foreign bond holders. Equity markets across the European periphery quickly turned lower on the allegedly plans with the Greek stock market down as much as 4%.
The alleged plan included a tax on individual and institutional investors that experienced gains in the Greek debt market between February 29, 2012 and December 2013.
Citing a Circular from the Greek government, PwC wrote: "The responsibility to calculate and pay the above tax to the Greek tax authorities lies with the foreign beneficiaries, both in case where there was no Greek intermediary or where there was a Greek intermediary involved in the transaction but the relevant transfer of bonds were made through collective (omnibus) customer accounts."
The consultancy firm added that foreign beneficiaries would have to remit the tax within two months from the issuance of the government's circular by submitting a tax return accompanied by documentation issued from its custodian(s) which discloses capital gains/losses realised from Greek debt from February 29, 2012 to December 31, 2013.
Foreign beneficiaries would supposedly have to appoint a tax representative in Greece and acquire a Greek tax registration number.
PwC had further warned that "given the tight deadline under the Circular, the potential penalties and the interest to be applied in case of non-compliance, immediate action is necessary by foreign beneficiaries. Considering further the uncertainties still existing especially in connection with the practical implementation of the new guidelines, specialists' advice should be sought."
The news provoked strong selling in European equity makets, especially in peripheral European markets.
For instance, the Ibex35 was down 2.4%, the Mib30 down 3%, and the PSI20 down 2.8%.
However, Reuters later pointed out that the document was only aimed at clearing up that former tax legislation including a 33% tax on institution investors and 20% for individual investors had been eliminated in 2014.
A press release from the Ministry of Economy specifies that there are no capital gains taxes for foreign investors transfering Greek bonds as of January 1, 2014. "Consequently, the reports referring to retroactive taxation or intention for retroactive taxation are completely untrue," it concludes.
Nonetheless, peripheral European equity markets held on to most of their earlier losses.