The Private Equity Council, a lobbying group that represents 11 of the industry’s largest and most influential US firms, has come out in opposition to the US Senate bill introduced last week that would alter the tax structure applicable to publicly traded partnerships.
The bill – authored by Senate Finance Committee chairman Max Baucus, a Democrat from Montana, and the ranking Republican member of the committee, Iowa Senator Charles Grassley – would increase taxes on publicly traded partnerships, and subsequently discourage US firms from going public and weaken the US’ financial competitiveness, the Private Equity Council contends.
“US firms will be put at a competitive disadvantage to overseas firms that can manage investment funds at a lower overall tax cost,” Private Equity Council president Douglas Lowenstein said in a statement. “Congress should not inadvertently create an uneven international playing field for an industry that serves such an important function in the American economy – strengthening portfolio companies and delivering superior returns to public and private pension funds, charitable foundations, university endowments and other investors,” he said.
The PEC has also objected to private equity partnerships being singled out.
“Income from private equity investments is no less qualified for this tax treatment than the income that flows to partnerships that own apartment buildings, mine for minerals or refine, market and distribute propane and other petroleum products,” Lowenstein said.
The Baucus-Grassley Bill applies only to partnerships that receive income from investment advisor and related asset manager services, and would not apply for five years to firms that have been trading (or have applied to trade) since the bill’s introduction on 14 June.
“Creative new structures for investment vehicles may blur the lines for the tax treatment of income,” Baucus said in a statement on 14 June. “We must make the law clear and apply the law fairly, or risk the erosion of our corporate tax base. If a publicly traded partnership makes its money by providing financial services, that active business should be taxed as a corporation. ”
The PEC has disputed the risk of the corporate tax base eroding, arguing that “Major financial institutions are unlikely to abandon their status as publicly-traded corporations to become publicly-traded partnerships because they would be faced with monumental tax payments that would serve as a powerful deterrent to converting to a publicly-traded partnership”.
In order to help find “a solution that addresses the issue in its entirety, rather than in one industry sector”, Lowenstein said the PEC will work with legislative committees that are planning to hold hearings on private equity this summer. Those committees include Senate Finance, as well as the House Ways and Means Committee, the House’s most powerful committee in terms of influence on tax policy and revenue-related legislation.
Based in Washington, DC, The Private Equity Council opened its doors in February with the mission to develop, analyze and distribute information about the domestic and international private equity industry. Its members are Apax Partners, Apollo Advisors, Bain Capital, The Blackstone Group, The Carlyle Group, Kohlberg Kravis Roberts, Hellman & Friedman, Thomas H Lee Partners, Providence Equity Partners, Silver Lake Partners and TPG Capital.