A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

FISCAL AND OPERATIONAL ISSUES

3.

FISCAL AND OPERATIONAL ISSUES

3.1

Fiscal aspects

3.1.1

Preamble

When it comes to fiscal aspects, the main issue is the global tax structuring of private equity projects, encompassing both cash repatriation aspects and investment structures .

The investment scheme structure set up aims at getting efficient cash flows. Indeed, all private equity houses focus on maximising cash repatriation from underlying investments and therefore IRR for investors. As investments are often spread internationally, taxation of such flows is closely monitored. Following the fund raising process, when there are already soft commitments (i.e. intentions to invest into the fund) from LPs and the investment deal pipeline steams up, the GP reviews the choice of domicile of the investment structure and the most suitable corporate forms in light of, among others, the following criteria: T he potential investors : • From which region do they come? Europe, MENA, North America, etc. • From which country? Germany, Italy, etc. • What kind of investors are they? Institutional investors, family offices, private persons, etc. T he deal pipeline : • Which investment strategies? Mezzanine, distressed, venture capital, real estate oppor- tunistic, real estate projects, infrastructure projects, etc. • Where are the target investments located? In the United States, Europe, MENA, Asia, Africa, etc.? • What kind of financing instruments? Debt, equity, guarantees, a mix of instruments? T he corporate governance : • Who should make the decisions? The board of directors, the investment adviser, a sub- adviser, etc. • Where are most of the managers located? In the same country? In different countries?

3.1

3.1.2

Investment scheme structure

Holding Companies (Hold Co), Financing Companies (Fin Co) and Joint Ventures (JV) are the most popular ways for structuring the investment scheme, as illustrated in figure 33.

Figure 33: Illustration of an investment scheme structure

Investment Fund

Third party investors

INTERM 1

FIN Co

SPV 1

HOLD Co

JOINT VENTURE

SPV 2

SPV 3

Target 4

Target 1

Target 2

Target 3

Target 5

Copyright CACEIS, 2009

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