UPDATE 2-Australia tax body may harden stand on private equity

* Rulings now due on May 26

* Delay to incorporate comments from review panel

* ATO seen using time to bolster case in event of challenge

* Private equity group: delay will damage investor
confidence
(Adds comments from private equity industry)

By Victoria Thieberger

MELBOURNE, April 21 (BestGrowthStock) – The Australian tax office
has delayed two critical rulings on how private equity firms
are taxed, in a move that tax experts say means the office is
hardening its stance against private equity.

Private equity firms argue the two rulings, if upheld,
would chill foreign investment in Australia by treating gains
on asset sales as taxable income.

The decisions, which had been originally expected in early
April, were due on May 5, but the Australian Taxation Office
said on its Web site the final rulings were now due on May 26.

The rulings stem from a dispute between the tax office and
U.S. private equity firm TPG [TPG.UL] over a $628 million tax
bill on the $1.4 billion profit that TPG made on the sale of
department store chain Myer (MYR.AX: ) last year.

The tax office said proceeds from asset sales may be taxed
as ordinary income, at the 30 percent corporate rate, instead
of as a capital gain, which would be tax-free for a
non-resident.

The tax office also issued a second draft ruling saying it
would crack down on offshore company structures that it
believed were being using to reduce firms’ tax bills.
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For a Q+A on the tax rulings, click on: [ID:nSGE63K052]
For a graphic on private equity deals, click on:
http://link.reuters.com/bur68j
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PREPARING FOR COURT BATTLE?

The ATO said on its Web site the delay was to incorporate
comments from a review panel on its draft rulings.

Tax experts said they suspected the tax office was giving
itself more time to argue the case for its preliminary
conclusions, in the event they were later challenged in court.

“I’m not expecting the ATO to change their minds on the
final positions they are adopting,” said Yasser El-Ansary, tax
counsel at the Institute of Chartered Accountants, who has been
involved in discussions with the tax office.

“The rulings panel, given the sensitivity of the issues,
wants to be certain the ATO has done everything it can to
explore how the law should apply and ensure the conclusions
they reach is supportable in a court of law,” said El-Ansary.

He predicted that firms affected by the rulings, which
include private equity firms but possibly other companies that
use offshore structures, would challenge the tax office in
court.

“I think it is highly likely that unless the government
intervenes in this issue, there will be a raft of taxpayers who
are impacted by one or both of those determinations and will
feel compelled to legally challenge the ATO’s position,”
El-Ansary said.

The Australian government has said it will consider its
position after the tax office issues its final decisions.

HIT TO CONFIDENCE

The Australian Private Equity & Venture Capital Association
(AVCAL) said the delay would damage investor confidence
further.

“The uncertainty created by the Tax Office actions has
brought the Australian PE industry to a virtual standstill,”
said association Chief Executive Katherine Woodthorpe in an
email to Reuters.

She said AVCAL’s discussions with the tax office also
indicated the final rulings would not overturn the drafts, and
it was now up to the government to intervene to protect foreign
investment in Australia.

“Both foreign investment into Australia via collective
investment vehicles and many exits from investments are
currently stalled while PE firms await the Government’s
legislative response,” Woodthorpe said.

Stock Market News

(Editing by Mark Bendeich and Lincoln Feast)

UPDATE 2-Australia tax body may harden stand on private equity