Complex bond trade dodges tax bill

An incident involving a civil servants’ pension fund being overcharged for investing in a government bond has brought to light a complex network of international transactions made between the funds and banks as a means of minimizing tax payments, according to data seen by Kathimerini. Finance industry participants, including leading banks, have set up a chain of transactions in which pension funds sell the government bond to a bank’s foreign subsidiary in order for it to be eligible for a tax break available only to foreign investors. The bond is then returned to the pension fund, after the maturity date, but is no longer subject to a 10 percent tax rate since it was owned by a foreign portfolio when the interest was paid. Sources said two banks have played a major role in setting up this chain of transactions that takes advantages of tax law loopholes. Meanwhile, a government investigation into pension funds investing in fixed-income assets is continuing after a probe conducted by the Labor Ministry found last month that the Civil Servants’ Auxiliary Fund (TEADY) was overcharged to the tune of 5 million euros on a bond transaction.

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