Thursday, June 19, 2014

Carlyle, PEU's Want $300 Million Aussie Tax Break

Financial Review reported from Down Under:

Private equity firms TPG, KKR and Carlyle Group want $300m tax break 

Three US-based private equity firms are seeking a $300 million tax break from Treasurer Joe Hockey, including TPG Capital, which was pursued by the tax office for $678 million after the sale of its 80 per cent share of Myer in 2009. 

The Australian Private Equity & Venture Capital Association, which counts TPG, KKR and the Carlyle Group as members, has written to Mr Hockey, complaining the retrospective changes to the thin capitalisation rules will force the global PE firms to pay up to $300 million in additional tax on debt arrangements for existing investments in Australia. 

The letter suggests the changes increase the ­sovereign risk of investing in Australia. It said the “ad-hoc” and ­retrospective nature of the rules were “not consistent with an environment that seeks to promote long-term stability and tax certainty for investors”. 

The changes, which come into effect on July 1, mean more tax than was budgeted for may have to be paid on investments by TPG and Carlyle in Healthscope, KKR in Bis Industries, and TPG in Inghams Enterprises. 

The tax affairs of the private equity industry are typically shielded from public view. They were thrust into the spotlight 4½ years ago when the Australian Tax Office failed to stop TPG moving profit from its exit of Myer to its companies in the Netherlands, Luxembourg and the Cayman Islands. Tax authorities subsequently warned PE firms they would freeze assets to ensure there is no repeat of the Myer episode.

My nickname for the U.S. PEU trade group is PECKER, which stands for Private Equity Capital Knowledge Executed Responsibly.  It appears a similar group of PECKERS work in Australia.  We'll see if Aussie politicians cater to the PEU class like their American counterparts, which grant PEU's virtual nonprofit status.