BEPs and Private Equity

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Buy-Side FeaturesFeatureLegalRegulation
27 Jan, 2016

Ian Kelly, Chief Executive Officer, Augentius

Under the direction of the G20, the OECD (Organisation for Economic Co-operation and Development) was requested to examine in detail “base erosion and profit shifting” (BEPS). It published its first report in February 2013 entitled “Addressing Base Erosion and Profit Shifting” and in July 2013 set out an “Action Plan on Base Erosion and Profit Shifting” identifying 15 areas that required addressing. The final reports were published in October 2015.

The reports are long and complex and, despite numerous webinars and events organised by some of the world’s largest advisors in recent weeks, the potential outcomes for Private Equity are currently unclear. Were the initiative to be turned into legislation, it would have to be adopted into the laws of every country involved – a long and complex process and one that in itself is likely to throw up anomalies. That said some countries, including the UK, have already started to identify some of the revenue advantages that the adoption of the legislation may generate and started to legislate accordingly.

As the world moves closer together under the banner of globalisation, we are seeing the increasing introduction of global legislation – FATCA, originally a US piece of legislation, has now grown into CRS, for example. Similarly it may be assumed that BEPS, should it succeed, will also become such a piece of all embracing global legislation.

However not everyone is in favour. Brian Garst, Director of Government Affairs, Centre for Freedom and Prosperity based in Washington, has expressed considerable concerns. “The BEPS project is a continuation of the OECD’s well documented effort to eliminate tax competition and will likely follow the same pattern of consistently moving goal posts. The project began at the behest of a tiny few, without open and public debate regarding the assumptions motivating the effort, its goals or the most appropriate methods to achieve them. There is a lack of accountability, reflected in the activities of the BEPS initiative that can only be rectified through real public debate and more direct political oversight.” (http://freedomandprosperity.org/2015/publications/making-sense-of-beps/)

So where does that leave the Private Equity community? The future direction of the legislation is unclear, but funds and deals need to be structured in the most effective way, maximising returns for investors. Navigating such a route through the prevailing legislative fog will be both cumbersome and expensive – and it is likely to be some considerable time before the fog clears!

Augentius is a specialist Private Equity and Real Estate administrator. With 450 staff operating from offices across the US, Europe and Asia, Augentius currently administers and acts as depositary to funds valued in excess of $85bn and provides investor reporting to over 10,000 LPs across the world

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