Tax has, in recent months, become a frontpage issue with reaction to businesses not “paying their fair share” sitting alongside pressure on government finances and an uncertain political environment. In our view, the cumulative effect of tax developments in the UK and beyond will impact private equity on multiple fronts, but particularly deal structure.
Since the introduction of the US Foreign Account Tax Compliance Act (FATCA) regime in 2010, there has been a global trend towards greater tax disclosure and information sharing. Much of the recent adverse publicity around tax has focused on complex structures, the use of tax havens and limitations of disclosure to tax authorities. As part of its BEPS (base erosion and profit shifting) project, the Organization for Economic Cooperation and Development (OECD) proposed disclosure of aggressive tax planning and country by country reporting of tax information, with information potentially being shared between tax authorities. As a result of this, deal structures are set to become increasingly disclosable, and establishing tax arrangements that will remain effective over time will be more challenging.