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Brown Hints At Higher Taxes For Private Equity

by Jason Gorringe, Tax-News.com, London

07 June 2007


Amid the increasingly vocal public outcry over the amount of tax paid by highly remunerated private equity bosses in the UK, Chancellor of the Exchequer Gordon Brown has hinted that the government will soon act to ensure the industry pays its fair share of tax.

Speaking at the annual conference of the UK's largest trade union, the GMB, in Brighton this week Brown pledged to “make sure there is justice and equity in the treatment of tax arrangements in that area," and to “find out what loopholes were being used and then to take action to deal with it."

Brown's comments came in response to remarks made by Nicholas Ferguson, chairman of SVG Capital, a fund management business listed on the London Stock Exchange, in an interview with the Financial Times in which he said that: "any commonsense person would say that a highly-paid private equity executive paying less tax than a cleaning lady or other low-paid workers can't be right."

The government has already launched two reviews of private equity taxation, one to examine the rules that allow fund executives to advantage of capital gains tax taper relief, which enables them to pay tax at 10% on a fund's profits, and another to examine the increasing use of shareholder debt as opposed to equity to gain more favourable tax treatment.

Coming from such a senior figure in the government, Brown's comments suggest action may come sooner rather than later to defuse the debate on private equity taxation. Indeed, his message appears to have been well received by unionists, who have been the most outspoken critics of the private equity industry in recent weeks.

"Cleaners in the UK will be delighted to hear that the Treasury is considering whether the multi-millionaire elite who run the private equity industry should continued to enjoy a lower tax rate than cleaners and if so what is the justification for this," said Paul Kenny, GMB General Secretary. "GMB conclude that the fat cats are losing the argument on tax and it was very noticeable that he did not leap to the defence of the industry which he has done before."

"GMB will continue to press for the withdrawal of unfair tax advantages and will continue to insist that pension fund trustees in companies targeted to be taken over by private equity demand cash up from to fix any holes in their pension funds," Kenny added.

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors, including Venture Capital, Forest Finance, Film Finance, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp

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