Private equity firms ‘would accept tax increases’

Source: Technology Digital

Date :18/06/2007 09:08:50

Britain's private equity firms are reportedly to accept that tax breaks they receive in the UK are over-generous and should be changed.

The comments come as key figures from five of the biggest buy-out firms prepare to face a Treasury Select Committee looking into private equity.

Currently partners pay just 10 percent tax on gains made on companies they invest in.

However, The Observer reported that only 40 of the top 200 private equity executives would be hit by a change to the tax regime.

While most of the other private equity partners based in the UK are British, they are not domiciled for tax purposes in Britain.

The Treasury Select Committee is expected to call on the government to ensure that private equity firms pay a fair share of taxes.

Wednesday's hearing will see key figures from Permina, Blackstone and 3i among those giving evidence.

They are expected to defend the role of private equity, which the industry says improves the performance of the companies it buys and is good for the economy.

But industry sources have been reported as saying that a change to the taxation system is "inevitable".

Private equity funds have been the subject of increasing controversy.

Snapping up a growing number of UK companies, including pharmacy group Alliance Boots, they have been accused of using too much debt to finance their deals and cutting jobs at the firms they buy.

Private equity executives pay taxes on their earnings and bonuses, but a large part of their earnings comes from ‘carried interest’ - the 20 percent share of profits they claim once they have paid back investors.

This money is classed as a capital gain, and as such is subject to a tapering tax level of 10 percent. Critics say it should be charged at a normal tax rate.

June 18 2007