Business taxation

Digital taxation

The digital transformation of the global economy comes with significant challenges for the existing international tax system, which has been in place for much of the last century.

How does it affect private equity?

The digital taxation debate is likely to reshape the tax policy landscape as we know it. This is important for private equity funds as any rules are likely to have a bearing on the companies they invest in. Staying informed and voicing concerns where necessary will be important from a private equity perspective in the years ahead.

BEFIT

After the failure of the revised Common Consolidated Corporate Tax Base (CCCTB) proposal, the European Commission decided to focus on long- and short-term recovery from the COVID-19 pandemic and economic challenges brought by it. At the same time the new proposal has to reflect the discussion already finalised at OECD/G20 level, where 135 jurisdictions joined a two-pillar plan to reform international taxation rules (GloBE Rules). The Business in Europe: Framework for Income Taxation (BEFIT) is going to create a single corporate tax rulebook for the EU.

How does it affect private equity?

While the potential impact of corporate tax reform is, in many cases, unlikely to be felt directly by private equity funds or managers, it will affect the companies in which they invest. The BEFIT proposal inherits some proposals from CCTB, including the idea of introducing an allowance for growth, which ideally should make equity funding more attractive.

Withholding tax

Although we live in the increasingly globalised economy, obstacles for cross-border investments still remain in the EU. Despite the measures already taken to remove these barriers EU still lacks efficient system for withholding tax. Depending on the country, the refunding process can be lengthy and extremely complicated or quick and simple. The European Commission seek to create a common EU-wide system for withholding tax, which includes also facilitate the information exchange of tax authorities.

How does it affect private equity?

While changes introduce by the creation of an EU-wide system will not lead to direct transformation in the business model of private equity, it may increase interest in cross-border investments, also in private equity.