Australian Tax Attack On Private Equity

Tensions are building in the private equity industry this week after the Australian Taxation Office (ATO) issued an AUD452mn (US$417mn) tax demand on private equity fund TPG, following its US$1.5bn float of department store Myer. The move by the ATO flies in the face of the government's attempts to nurture a steady flow of international investors, and has instead served to send out a loud warning signal to investors. Back in 2006, the government passed legislation abolishing capital gains tax on sales for overseas investors (as long as the asset sold consisted of less then 50% real estate by value), in an attempt promote foreign investment. Peter Collins, international tax partner at PricewaterhouseCoopers, agrees, the actions of the ATO are 'sending signals to foreign investors that scare them'. Should the ATO's quest proves to be successful, there is a good chance Australia will see capital dry up - and fast. This would come as crippling news for a country which has become increasingly reliant on foreign direct investment (FDI) to enhance productivity and increase employment.

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