Guy Hands, the chief executive of Terra Firma, has made a robust defence of the taxation of private equity bosses, arguing that the low tax rate they enjoy is fully justified.

In a letter to the Financial Times, Hands said that the carried interest paid out to buyout bosses should only be taxed at 10% as it rewarded risk and entrepreneurship.

'While the definition of carry may vary across private equity firms, it was originally intended to cover a payment to individuals of a private equity firm who invested their own money,' Hands said.

He questioned whether listed company executives would be happy to accept the same level of risk as private equity heads did in order to enjoy a lower tax rate.

'I do wonder how many FTSE100 chief executives would be prepared to take the risk of abolishing their bonuses and option schemes in return for capital gains-based carry which would only start to be paid if they delivered real shareholder value in excess of 8% compound over a seven-year period,' Hands said.

Hands also issued a veiled criticism at veteran buy-out heads who had benefited from the low tax on carried-interest in the past but had now publicly criticised the tax rate.

'These grandees and private equity critics might all do well to think through the long-term consequences of any proposals they make, rather than playing to the gallery,' he said.

Further reading:

Go here to find out why carried interest has become so controversial

Steps the Treasury could take to tax buyout bosses at a higher rate

Read what the Unions have to say about private equity taxation