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Most US Venture Capital Firms 'Unaffected' By Fund Tax Bill, Says NVCA

by Mike Godfrey,, Washington

27 June 2007

New legislative proposals that would tax as corporations all publicly traded partnerships that directly or indirectly derive income from investment adviser or asset management services would leave the majority of US venture capital firms unaffected, according to the industry's main lobby group.

Responding to the introduction of a bill that aims to tax such funds at 35% instead of 15%, Mark Heesen, president of the National Venture Capital Association (NVCA), said in a statement that "almost no" venture capital firms would be affected by the proposals since they are aimed at funds which are publicly traded.

"The Bill proposed by Senators Baucus (D-MT) and Grassley (R-IA) is directed at publicly-traded partnerships," Heesen stated. "As almost no venture capital firms are publicly held, this proposed legislation does not impact our business."

Heesen added that the NVCA has met with staff members of the Senate Finance Committee, Joint Tax, and the House of Representatives Ways and Means Committee over the past several months to explain how the venture capital model is "taxed correctly".

"We remain hopeful that lawmakers will continue to demonstrate an understanding that the existing venture capital tax structure is appropriate and critical to economic growth in the US," Heesen stated.

The National Venture Capital Association (NVCA) represents approximately 480 venture capital and private equity firms. According to a 2006 Global Insight study, venture-backed companies accounted for 10.4 million jobs and $2.3 trillion in revenue in the United States in 2006.

Senate Finance Committee Chairman Baucus and ranking committee Republican Chuck Grassley introduced the bill because, in the words of Grassley, some firms are "pretending to be something they’re not to avoid most, if not all, corporate taxes".

"It’s unfair to allow a publicly traded company to act like a corporation but not pay corporate tax, contrary to the intent of the tax code," he said upon the bill's introduction, adding: "If left unaddressed, the tax concerns presented by the public offerings of investment managers, like private equity and hedge fund management firms, could fundamentally erode the corporate tax base."

Similar sentiments are being echoed across the Atlantic in the United Kingdom, where incoming Prime Minister Gordon Brown is under increasing pressure from unions and the left of the ruling Labour Party to change tax rules allowing private equity firms to treat income as capital gains, and qualify for a special tax regime that can reduce tax on carried interest to 10%.

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 and a description of the report can be seen at

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