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Greek Taxes Strangle Funds Management Industry

Greek Taxes Strangle Funds Management IndustryGreek Taxes Strangle Funds Management Industry

Greece’s latest austerity measures are choking off one of its few sources of local private investment, the funds management industry, thanks to massive tax hikes buried in 7,500 pages of financial reforms approved by the parliament last month.

One listed Greek fund has frozen a €300 million ($340 million) investment plan, and another has put a share issue of at least €250 million under review, since the hikes were passed—a footnote in a reform package that appeased the government’s European creditors and avoided another cash crunch, Reuters reported.

The country’s €7 billion ($8 billion) funds industry, though small, is a potentially important vehicle for much-needed investment in the shattered economy, helping firms to raise money and buying up property from banks burdened with bad loans.

The new tax rates, applied to funds under management, underline how Athens is relying on a narrow, overstressed tax base to stay afloat, depressing economic activity, while the country’s large black economy remains out of reach.

The finance ministry, which is also overseeing a hike in value-added tax as well as separate taxes on Internet usage and fuel, did not respond to requests for comment.

Taxes on mutual fund assets will jump by as much as seven-fold, with new tax rates differing by type of fund.

Real estate funds, a fast-growing source of investment in recent years, fare the worst because Athens has also doubled a separate tax on landlords, in turn hurting property value.

Such a tax, which comes on top of normal corporate tax, is unusual for the asset management industry.

No major European fund management center imposes such a levy, with taxes usually imposed on dividends, interest income or capital gains rather than a blanket rate on funds under management.

A property investment fund, NBG Pangaea, is likely to ditch plans to raise between €250 million and €400 million in a share issue, said a senior executive at the fund who spoke on condition of anonymity. It planned to invest the proceeds in commercial property.

  Capital Controls

Greek mutual-fund investors are mainly middle-class investors, each with around €20,000 to €30,000 invested, while the wealthy use private banking, industry insiders say.

“I would be looking to switch to a foreign mutual fund management company to avoid it (the tax hikes), but even if you pull the money out you can’t send it abroad under capital controls,” said Nikos Villiotis, 47, a civil engineer who has about €60,000 invested in Greek equity and bond funds.

Greece’s capital controls, imposed a year ago to prevent the collapse of its financial system, have dissuaded investors from stampeding out of local mutual funds, but fund managers say redemptions are still likely once the controls are lifted.

 

Financialtribune.com