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Need To Know

Silence On Carry In Tax Deal

The tentative Dec. 7 tax deal between President Barack Obama and congressional Republicans made no mention of raising taxes on private equity gains. And the Senate Finance Committee had already dropped that idea from a bill to extend broader tax cuts enacted in 2001 and 2003.

Proponents of higher private equity taxes argue that carried interests, essentially free stakes typically of 20 percent in the funds buyout firms manage, should be treated as income earned for investment management services, points out Breakingviews, a sister commentary service to Buyouts. Such a change would subject carried interests to the highest marginal income tax rate on ordinary income. Under current U.S. law, profits earned by investment fund managers at hedge fund and private equity firms are taxed as capital gains at a much lower rate.

Pete Peterson, the co-founder of buyout firm The Blackstone Group LP, who cashed out in 2007, told the New York Times recently: “I think if you make an investment with cash and you get a return, that should be capital gains. If you’re a hedge fund and a private-equity fund and you get your carried interest taxed at capital gains, I can’t justify that, because it’s a payment for services, and it ought to be taxed as income tax. We both put up $200,000, and it was a wonderful return.”

Australia Takes Bite On Sales

Other nations taking a harder line. The Australian Tax Office ruled Dec. 1 that gains from asset sales by private equity firms would be taxed as income, ensuring that buyout lobbyists will head to Canberra in the new year to call on the government to legislate to overturn the ruling, according to Reuters, the publisher of Buyouts.

The ruling stems from a dispute between the tax office and private equity firm TPG, which was hit last year with a $628 million tax bill on the $1.4 billion profit it made on the sale of department store chain Myer. TPG declined to comment on Wednesday’s ruling.

The ruling specifically targets private equity firms that are domiciled in international tax havens.

Sigular Sues Boyazny

Siguler Guff & Co. has sued Maria Boyazny, the former portfolio manager who left in October to open her own shop, MB Global Partners, according to Dow Jones LBO Wire.

The complaint, filed Dec. 3 in the New York Supreme Court, the state’s trial-level court, accused Boyazny of stealing “commercially sensitive information” when she left, including information on the firm’s investors and funds’ positions. Boyazny has 20 days to respond, LBO Wire said.

Boyazny could not be reached by deadline. She told Buyouts in November that her new partner, G2 Investment Group, has a whole different set of investors for her to reach out to.