Pressure rising to increase private-equity bosses' taxes

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

Both the German and Swedish governments are considering proposals to increase tax rates for the industry’s profit-sharing schemes, which private-equity executives say are likely to trigger similar changes in Europe.

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 that the wealthy pay more. “[Private-equity groups] should recognise that tax treatment of their income has become indefensible,” Mr Dear said.

Calpers is among the world’s largest investors in private-equity funds and has investments with Blackstone, Carlyle and KKR.

Mr Obama’s position contrasts with that of Mitt Romney, one of his Republican opponents and a former private-industry executive with Bain Capital. Mr Romney’s recently released tax returns show that he paid an average rate of 15 per cent in recent years.

The president’s 2013 budget proposal reiterated what he calls the “Buffett rule” – after investor Warren Buffett – that anyone earning more than $1 million (€764,000) should pay a minimum 30 per cent rate, to ensure they are not taxed more favourably than their secretaries.

In Europe, buyout managers enjoy preferential tax treatment on profit-sharing schemes. But in Germany, four regional governments are studying a plan to remove an exemption clause that allows only 60 per cent of a private-equity manager’s profits to be taxed.

In Sweden, authorities are pushing executives from Nordic Capital, IK and Altor retrospectively to pay a 56 per cent rate of income tax – plus a 40 per cent penalty tax on past profits instead of the 30 per cent capital gains rate they have paid. – (Copyright The Financial Times Limited 2012)