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Last Updated: Tuesday, 3 July 2007, 13:04 GMT 14:04 UK
Private equity 'abusing tax deal'
Jon Moulton
Mr Moulton's comments break rank with other private equity bosses
Some UK private equity firms are "abusing what is already a generous tax regime", one of the industry's bosses has told MPs.

John Moulton, a founding partner of Alchemy, accused buyout firms of moving money overseas to avoid tax.

The comments came as Mr Moulton gave evidence to a Treasury Select Committee looking into the industry.

However, another three leading private equity figures denied knowledge of abuse of the tax regime.

"I have certainly seen no evidence of that," Peter Taylor of Duke Street Capital told the committee.

Mr Moulton had earlier told the Financial Times that there was "a lot of advance planning that goes on" in where money was paid.

"Buyout firms are stacking up cash offshore in ways that look bloody wrong to me," he added.

Tighter regulation?

It's easier to sell at a good price than to find good value now
Peter Taylor, Duke Street Capital

The committee also heard from Sir David Walker, the author of report into the industry, who said that UK private equity companies needed to be more transparent.

However, he said that his independent review would be proposing a voluntary code of conduct for firms, not a statutory one.

"Private equity's importance has grown hugely in the UK, especially in the last three years," said Sir David, who will produce a preliminary report next week.

"Its attention to stakeholders' interests has not matched that growth."

'Force for good'

The heads of firms such as CVC and Blackstone are testifying at the hearing, which is investigating whether the sector needs tighter regulation and to pay more tax.

The industry was "buoyant", bosses told the MP's though Mr Moulton added that it might be operating "near the top" of its market.

"There are deals that are being pulled," he said.

Mr Taylor told the committee that it was becoming harder for private equity to buy up firms.

"It's easier to sell at a good price than to find good value now," he said.

The Financial Services Authority (FSA) also gave evidence, saying that it was happy with the level of regulation it had carried out on private equity.

At an earlier hearing, bosses from KKR, 3i and Permira defended the industry.

They said that it had a right to tax breaks and called private equity a "force for good".

The latest hearing came on the day that the BBC revealed that Saga and the AA, the private-equity owned businesses that are merging, incurred no liability for corporation tax last year.

And in their two-and-a-half years of ownership by private equity, they paid almost zero corporation tax, business editor Robert Peston said.

Treasury Select Committee chairman John McFall told the BBC that the revelation that the firms had such low tax bills was concerning.

'Unfair' rates

Private equity funds have increasingly hit the headlines in recent years, snapping up a growing number of UK companies, such as pharmacy group Alliance Boots.

Private equity executives pay taxes on their basic pay and bonuses, but a large part of their income comes from carried interest, or the 20% slice of profits they can claim once they have paid back their investors.

This money is classed as a capital gain and, if it is held on to for two years, is subject to a tax level of 10%. Critics say it should be charged at a normal tax rate.

Some private equity figures have admitted that the low tax rates are unfair, including the head of SVG, Nick Ferguson, who admitted that some of those running and investing in private equity were paying tax at a lower level than cleaners.

However, supporters of the industry say that increasing the tax would make the UK less attractive to investors.

Equity heads defend the industry
21 Jun 07 |  Business
Saga and AA enjoy zero tax bill
03 Jul 07 |  Business
Equity firms 'to accept' tax hike
17 Jun 07 |  Business
Private equity chiefs under fire
12 Jun 07 |  Business
Private equity head stands down
14 Jun 07 |  Business

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