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Last Updated: Friday, 15 June 2007, 06:45 GMT 07:45 UK
US eyes private equity tax change
Blackstone promotional image
Blackstone is one of the world's largest private equity firms
Two US senators have proposed a sharp rise in the tax that private equity firms have to pay.

Funds should pay tax at the same level as other businesses, say Max Baucus and Charles Grassley - the two top members of the Senate Finance Committee.

Businesses in the US are taxed at a standard level of 35%, while partners in investment funds are taxed at 15%.

The proposal comes ahead of a $4bn flotation by Blackstone, the world's second-largest private equity firm.

Concerns 'justified'

"The nature of investment vehicles is changing right before our eyes and the tax code must keep up," the senators said.

"Creative new structures for investment vehicles may blur the lines for the tax treatment of income. We must make the law clear and apply fairly, or risk the erosion of our corporate base."

The real point of any tax increase would be to feed the baying dogs of private-equity haters - even if the tax reform were innately fatuous.
Robert Peston
BBC Business Editor

According to the US constitution, tax legislation has to start in the House of Representatives - by standard practice, in the powerful Ways and Means Committee - rather than the Senate.

But the committee's chairman, Chuck Rangel, has already given his support.

"Together, our actions should put everyone on notice that Congress may act to address these outstanding issues," he said.

Private equity firms in the UK have also come under fire - with unions and MPs questioning the levels of tax that they pay.

Last week the head of one UK private equity group, SVG's Nick Ferguson, said the claims may have some justification, when he admitted that some of those running and investing in private equity were paying tax at a lower level than cleaners.

Blackstones expects will raise about $4bn by making just over 10% available to investors.

Shareholders will own a stake in the management company rather than the portfolio of companies in which it has invested.

Separately the Chinese government has agreed to pay $3bn (1.5bn) for a 10% stake.

China buys $3bn Blackstone stake
21 May 07 |  Business
US fund giant in $4bn share float
22 Mar 07 |  Business
US property firm bought for $36bn
20 Nov 06 |  Business
Center Parcs backs Blackstone bid
09 Mar 06 |  Business

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