Friday, February 15, 2008

Private equity taxing credulity

There's a report in The Independent that private equity is saying it is responsible for tax "contributions" so great that it would be enough to "pay for every nurse and police officer in the country."

Fair dinkum.

Guambat hasn't seen the report and wouldn't know enough to parse it most likely anyway, but he remains dubious. For instance, the news story related as how "Private equity-backed companies have contributed £140bn in tax to the UK economy over the past five years".

Bearing in mind that these companies were existing and paying taxes before private equity bought them out, how much of that total amount would have been paid in any event? Indeed, were it not for off-shoring and off-balancesheeting and stripping jobs and assests, etc., how much more might have been paid?

In other words, even if this is an accurate gross figure, what did private equity do in and of itself to increase or decrease this lump sum? What is the net effect after adjusting for the costs of private equity? For instance, had private equity been taxed as the "equity" it says it is instead of the debt it uses and deducts to acquire the businesses and provide their dividends, would they have actually "contributed" more?

Guambat, being the silly old fool that he is, always has more stupid questions than bright answers.

See,

Private equity – who’s paying for their profits?

Private equity or private debt? Beware the Ides of March.

When private equity players are paying ‘less tax than a cleaning lady’, the question is: are we being taken to the cleaners?

Private equity tax rules examined

Restricting tax deductibility for private equity debt in the UK

Etc.

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