UPDATE 1-Greece says foreign bondholders won't be subject to capital gains tax for 2012-13

Fri May 16, 2014 12:50pm EDT

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By Lefteris Papadimas

ATHENS May 16 (Reuters) - Foreign holders of Greek bonds will not be liable for capital gains tax for 2012-13, two finance ministry sources said on Friday, as Athens sought to soothe investor uncertainty about tax changes effective from this year.

Athens had been forced to deny on Thursday that foreign holders of Greek bonds would be subject to capital gains tax in 2012-13 after a government tax circular spooked investors and helped push Greek 10 year-bonds to near two-month highs.

A new law came into effect in January this year scrapping capital gains tax for foreign holders of Greek bonds but it was not made clear whether this would apply for gains booked in 2012-13 or only from 2014.

Greek officials said on Thursday that the document that had spooked financial markets had probably been misinterpreted as it had only sought to clarify that the previous capital gains tax of 33 percent on foreign legal entities and 20 percent on individuals had been abolished starting this year.

The government later revoked the document, but that failed to erase uncertainty. Greek 10-year yields rose as much as 53 basis points on Thursday to as high as 6.84 percent, a near two-month high.

"The government intends to scrap the law which imposes taxes on capital gains of foreign bondholders for 2012-13," a finance ministry official told Reuters on condition of anonymity.

A second finance ministry official said the government was still deciding on the method by which it will scrap the capital gains tax liability, possibly through a new law. "We are still trying to find the technical way to do this," the second official said. (Additional reporting by John Geddie in London; Writing by Karolina Tagaris; Editing by Susan Fenton)

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