Driving the Positive Tax Agenda - What is tax neutrality?

Tax neutrality is one of the most discussed topics in the private equity and venture capital industry. And yet, a great deal of misunderstanding persists, even among investors and investment managers.

So what, exactly, is tax neutrality? It means that in order to avoid additional burdens on taxpayers, the tax should be paid only once. When it comes to private equity, investors should only be taxed on their gains and income when they make taxable profits from the fund.

This concept is particularly important as funds are not simply a single company in which investors invest, which can easily lead to double taxation. In parallel, different EU jurisdictions have their own views on which entities are transparent for tax purposes. This is another issue to consider in the context of cross-border investment.

EU and national governments need to create a regulatory framework that maximises the flow of investment capital. Tax neutrality is critical in achieving this.

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