Club

Tax Developments in Private Equity

At the club meeting on July 5th we will focus on issues affecting tax within private equity. In this session we will update you on the new SICAR, a Luxembourg vehicle designed specifically for private equity, as well as some differences in opinion with Customs and Excise regarding the treatment of VAT by PE/VC Houses. We will also discuss the current position and likely developments with Schedule 22.

Laurent de la Mettrie (PwC Luxembourg)

SICAR : A new regulated flexible vehicle for Private Equity investments

• Luxembourg has adopted a new vehicle especially designed for Private Equity investments, the so-called “SICAR” • Unlike traditional investment funds, a SICAR presents an attractive tax regime as it benefits from Double Tax Treaties available in Luxembourg as well and it enjoys the benefits of the EU directives on withholding tax • It does not suffer the traditional regulatory constraints of other regulated funds as, for example, there is no risk spreading ratio, no need for approval of the investment manager • Like a traditional LP, the management rules are laid down in the articles of association and the law does not foresee any major constraints to the functioning of the SICAR

We will then follow by a comparison between a SICAR and a UK LP: • The SICAR presents advantages similar to UK LP’s as it can be organized in a very flexible manner • SICAR targets at a broader population of investors, including high net worth individuals.

Stuart Corp

The added cost of irrecoverable VAT

The BVCA guidelines represent an agreement with Inland Revenue on the use of limited partnerships as a tax transparent vehicle for funds. Unfortunately, no similar agreement has been reached with Customs and Excise on the full VAT consequences of using UK-based limited partnerships. There are significant differences of opinion over VAT matters as well as recent developments that are likely to fundamentally affect the treatment of VAT by PE/VC houses. Some of the issues that we will address are:

• The absence of any uniformity in the VAT treatment of supplies and the recovery of VAT by PE/VC houses. • What is the impact of the new changes to VAT group eligibility rules on structures where no VAT currently exists on fees charged by an Adviser to the General Partner? • What are the consequences of the new disclosure regime implemented by Customs and Excise?

Tim Hughes

Schedule 22

Schedule 22 was probably the most significant tax change to affect the private UK equity industry in 20 years. Tim has been at the forefront of developments in this area as a result of his role within the firm and at the BVCA. Tim will focus on the current position and likely developments over the next 12 months. Private Equity Club

Laurent de la Mettrie

In 1989, Laurent joined Coopers & Lybrand in Paris as a tax lawyer and member of the Paris bar and has been involved in different aspects of the funds business. Particularly, Laurent organised the tax structuring of various real estate operations conducted on the French market. He joined PricewaterhouseCoopers Luxembourg in 1999. Laurent has advised and assisted various and private equity groups in respect of tax structuring for investment funds and structures (mitigation of withholding tax exposure, reduction of taxable basis) and management companies (transfer pricing rules, VAT optimisation) as well as for various tax reporting in connection with the pan European distribution of investment funds. He is a regular contributor to PwC’s Global Investment Management Network. He is also a frequent lecturer at various IM conferences and wrote numerous articles on the various implications regarding the taxation of investment/private equity funds and related topics. Additionally, he has kept himself informed on the development of savings taxation and the European savings directive. In this context, he carried out studies for his clients, analysing the Directive’s impacts on their business, products, investors and distribution channels. Laurent is a member of the tax committee of the Luxembourg Funds Industry Association (ALFI), a member of the savings directive committee of the Luxembourg bankers’ Association (ABBL). Moreover, he has monthly meetings with the Luxembourg tax administration for PwC clients.

Telephone: +352 49 48 48 32 04 or E-mail: [email protected]

Stuart Corp

Stuart is an experienced VAT Manager in the Financial Services Tax practice at PricewaterhouseCoopers LLP. Stuart previously worked for HM Customs & Excise for 13 years covering HQ policy, VAT training and VAT audit inspections for financial institutions located in . Since joining PwC in 2000 he has gained significant experience on the range of PE/VC house clients, including advising on VAT grouping applications for variations on the BVCA model, opportunities for input tax recovery and negotiations with Customs and Excise on partial exemption calculations.

Telephone: +44 (0) 207 213 8574 or E-mail: [email protected]

Tim Hughes

Tim is a tax director in our Financial Services practice and has significant experience of M&A work and private equity, having specialised in this area for the last 6 years. Tim has worked for many of the major private equity houses including , Candover, Clayton Dubilier & Rice, Apax, DB Capital, Bain Capital and . Tim led the provision of our services on the establishment of the Change Capital Fund.

Tim also has experience of significant corporate acquisitions including Slough Estates’ competitive bid for Bilton, and Wanadoo’s takeover of Freeserve. Most recently he has worked on the flotation of Center Parcs and the public to privates of Debenhams and Fitness First

Tim chairs our cross tax group focusing on private equity and leads our European management service team aimed at private equity houses. Tim is also a member of the BVCA tax committee.

Telephone: +44 (0) 207 213 5397 or E-mail: [email protected]