Pressure rises on private equity bosses’ tax

PRESSURE IS rising across the globe to raise taxes for private equity bosses, with German and Swedish authorities pushing for legislative changes and a leading US pension fund investor calling the 15% rate in America “indefensible”.

Both the German and Swedish governments are considering proposals to lift tax rates for on the industry’s profit-sharing schemes, in what private equity executives say is likely going to trigger similarly sweeping changes across Europe, the Financial Times reported.

In the US, the comments about the industry’s taxes by Joe Dear, investment chief of Californian pension fund Calpers, come as US President Barack Obama is demanding the wealthy pay more.

“General partners [in private equity companies] should recognise that tax treatment of their income has become indefensible,” told the FT on Monday.

Calpers is among the world’s largest investors in private equity funds and it has investments with Blackstone, Carlyle and KKR. In Europe, buy-out managers enjoy preferential tax treatment on profit sharing schemes that are their main source of income in most countries, FT research shows.

But in Germany, four regional governments are studying a plan to remove an exemption clause which allows only 60% of a private equity manager’s profits to be taxed.

In Sweden, tax authorities are pushing key executives from Nordic Capital, IK and Altor to retrospectively pay a 56 per cent rate of income tax – plus a 40% penalty tax on past profits instead of the 30% capital gains rate that they have already paid.