Buyout firms polled over Aussie tax concern

* Austrade seeks opinion from buyout firms

* Concern that TPG/Myer case may impact investments

* Firms with Australia presence include TPG, KKR, Carlyle

By Megan Davies and Victoria Thieberger

NEW YORK/MELBOURNE, Jan 25 (BestGrowthStock) – Australia’s
government trade agency has been gathering opinion from major
global buyout firms to see if they are deterred from investing
in Australia after the country’s tax office hit U.S. buyout
giant TPG with a large tax bill on an investment.

Austrade reached out to a small number of global private
equity firms in late December to find out it affected their
investment intentions in the country, according to a memo,
obtained by Reuters and a source familiar with the matter.

Austrade, the Australian Government’s trade and investment
development agency, asked buyout firms for confidential
comments, which would be communicated back both to the
Treasury, cabinet members and Australian Prime Minister Kevin
Rudd.

The feedback is yet to be relayed back. Other data on the
tax situation is still being awaited, including a large report
from Treasury Secretary Ken Henry.

The move highlights Australia’s concern about foreign
investment into the country being derailed.

Private equity firms are anxious about the uncertainty
surrounding the tax situation in the country, and are worried
it could make the country less competitive compared to rival
places to put dollars, such as Singapore and Hong Kong.

Michelle Lee, New York-based spokeswoman for the Australian
Government said: “We (including Austrade and the Australian
Consulate General) are speaking to a range of stakeholders on
the issue of tax; and advising the Treasury and other Cabinet
Ministers.”

She confirmed that those stakeholders contacted include
private equity firms, and said that the process is continuing.

“We are acting on this because the Rudd government is
committed to seeing Australia grow as a financial services
hub,” Lee said. Austrade reached out on behalf of the
Australian Government, she added.

TOUGH PROPOSAL

Australia’s tax office proposed tough rules in December for
taxing gains on private equity investments.

In draft rulings, the Australian Taxation Office (ATO)
touched on the two issues behind the continuing dispute with
TPG [TPG.UL] over the A$1.58 billion ($1.42 billion) profit it
made selling out of department store group Myer (MYR.AX: ). The
dispute centers on how to tax those gains.

In one draft ruling, the ATO said if an investor’s regular
business is restructuring and floating companies, then the
profit from selling shares in the Australian public company
will be treated as ordinary income, which is taxed at a higher
rate than a capital gain.

The ATO draft ruling is open for comments and submissions.

The Australian Private Equity & Venture Capital Association
has called on the government to step in and legislate tax
policy to ensure that the ruling would not stand.

“We know categorically from overseas investors that they
are nervous about investing in Australia,” said Katherine
Woodthorpe, the association’s chief executive.

In addition, a government-commissioned financial services
report said earlier in January that tax uncertainties meant
many foreign institutions preferred not to headquarter their
Asia-Pacific operations in Australia.

Ken Henry’s report is expected to touch on the issue of
capital gains tax. While foreigners can be exempt from capital
gains tax, Australia’s tax office treats such gains as income
in the case of private equity firms.

As well as TPG, a number of buyout firms have investments,
or a presence, in Australia. Carlyle [CYL.UL] opened an office
in Sydney in 2005; and Kohlberg Kravis Roberts & Co (KKR.AS: ),
which has an office in Sydney, has been building an Australian
franchise since 2006.

Rudd himself visited KKR at a gathering that KKR co-founder
Henry Kravis held at the private equity firm’s Manhattan
offices in September 2009. He also spoke to a number of other
international investors at the time.

Among other major buyout firms, Bain Capital does not have
a presence in Australia and Blackstone (BX.N: ) has not done any
deals in the country.

TPG declined to comment for this story. It has said it
strongly believes it has met all of its Australian tax
obligations in connection with its Myer investment.

“Everybody has been using the same structures, the reality
is everyone is in the same boat,” said an Australian industry
source on Monday. “If you want the major funds to put dollars
down here, you have got to have certainty. If the ATO can
change simply the rules, who is going to commit capital here
for any period of time?” the industry source said.

Stock Today

(Megan Davies and Victoria Thieberger; Editing by Tim Dobbyn)

Buyout firms polled over Aussie tax concern