AVCAL letter to AFR
14 January 2011
The tax commissioner, Michael D'Ascenzo, while clearly doing an excellent job of protecting the tax revenue, seems to be overstepping his role with a dismissive comment on the contribution of a whole industry sector, namely private equity, "to the prosperity of the economy".
It is particularly unhelpful when the Australian Private Equity and Venture Capital Association is in constructive discussion with the Australian Taxation Office regarding implementation of its recently published final determinations. Nor is it a policy view of government.
The findings of the Senate inquiry into private equity investment said, inter alia, that, "The committee views private equity as an opportunity to reinvigorate underperforming public companies, which will subsequently benefit Australian consumers, shareholders and workers."
There are two particularly misleading comments that contribute to misunderstanding of the PE industry.
The first is the commissioner's suggestion of a "get in quick, get out quick methodology" for leveraged buyouts. With an average holding time of investments of three to five years, we would dispute characterising such periods as "quick". The average holding period of one year, two months for units in the S&P/ASX 200 Index would seem to fit that description better.
Second, the continuing implication that once assets are sold and the gains realised, that they are sent offshore as quickly as possible to avoid the revenue authorities accessing them is disingenuous. The rate at which the proceeds of investment realisations are repatriated to their owners (pension, endowment and superannuation funds in the main) is determined by the requirements of those investors, as specified in the contracts between them and the PE managers.
Katherine Woodthorpe Chief executive AVCAL: The Australian Private Equity and Venture Capital Association Ltd Sydney NSW
Author: Adrian O’Shannessy, Director, Greenwoods & Herbert Smith Freehills
Author: Dr Kar Mei Tang, Head of Policy and Research, AVCAL