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Sweden hits Wallenburg family’s buyout firm EQT and employees with $100 mln tax bill

Sweden hits buyout firm EQT and employees with $100 mln tax bill

Wed, Aug 21 2013

By Kylie MacLellan and Mia Shanley

LONDON/STOCKHOLM, Aug 21 (Reuters) – Sweden is demanding that private equity firm EQT Partners and some of its employees pay 647 million Swedish crowns ($100 million) in tax on past profits as it cracks down on buyout firms. Sweden has been trawling through tax returns and earnings declarations going back to 2005 of private equity firms that were paying tax at low rates or, in some cases, not at all. It wants to tax the majority of private equity carried interest, a share of profit on deals, at the highest income tax rate of 55 percent, not at the capital gains rate of up to 30 percent. The prominent and powerful Wallenberg family’s EQT, said the Swedish tax authorities would retroactively tax about 20 current and former employees of EQT as well as the company itself for income between 2007 and 2009. The tax authority said it had asked EQT to pay 334 million crowns and the employees 313 million for that period. It has already demanded 100 million crowns more for 2006. EQT said it would challenge the demand. “The parties concerned have followed all rules and regulations in Sweden, fully declared income and provided all relevant information to the tax authorities. Our view is that nothing new has been found in the investigations that warrant a retroactive change,” chief operating officer Johan Bygge said. EQT said income declarations from the individuals concerned had been approved by the tax authorities for the last 18 years. “The behaviour of the tax authorities creates a high level of uncertainty for EQT Partners AB and its employees,” the company said in a statement. Among other buyout firms facing retrospective tax charges, Nordic Capital was asked for $118 million and nearly $32 million of penalties in 2010. It is also contesting the tax demand and is yet to pay anything.

Tax attack

Leveraged buy-outs face legal scrutiny

Both cases relate to a tax loophole used by private-equity firms in America and much of Europe. Under “carried interest” rules, buy-out executives pay (relatively low) capital-gains taxes on profits made from buying and selling companies, in the same way investors or entrepreneurs do. This is odd, given that the money wagered on private-equity deals comes overwhelmingly from outside investors, not the executives themselves. It would make more sense for these profits to be taxed like salaries, or bankers’ bonuses, at the (higher) income-tax rate.

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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