I'm not so rash as to say that the argument for change in the taxation of private equity has been won yet. But today's coverage has been exceptional.
The Sunday Times and Observer both gave the issue prominence. The former broke, rather publicly, the fact that I have done some work on this issue with the TUC. The latter gave prominence to a statement that:
'Private equity is playing the offshore trick for all it is worth. They're claiming not to be here when they are here. This is a con trick exploiting UK taxation law.'
I admit, I said that. This is an encouraging dimension of this debate. People are realising that offshore, domicile and corporation tax abuse of the concept of non-residence are all linked in this issue, and that all need reform. It's good they have the same realisation in the US too.
What I also hope will have happened as a result of my efforts this weekend is that the claim that Private Equity does not enjoy special tax privileges will have been exposed for the misrepresentation that it is. As the Sunday Times notes:
Private-equity executives were the unintended beneficiaries of tax breaks set up by Brown in 1998 to benefit small companies and entrepreneurs who build up businesses or stake their own money in them. What the BVCA failed to point out at last week's hearing was that it lobbied for and secured special treatment for the private-equity industry in 2003, when these benefits came under threat in the Finance Bill.
Section 421 of the Income Tax (Earnings and Pensions) Act was designed to clamp down on abuse of employee share-option schemes. This would in effect have killed off the private-equity reward model of granting stakes or so-called carried interests in buyout funds to top buyout executives in return for beating certain minimum-return hurdles.
The clampdown meant carried interests were in danger of being caught by the new measures. Private-equity partners' carried interests would be classified as income rather than one-off capital gains: as a result, they would attract a much higher tax rate.
Ferocious lobbying from the BVCA won the battle with Brown, securing an exemption for the industry. In July 2003 a special "memorandum of understanding" was created between the BVCA and the taxman on the income-tax treatment of venture capital and private-equity partnerships and carried interests.
Murphy points out that the memorandum of understanding does not have a statutory basis and that it has never been to parliament. "In other words, the BVCA memorandum of understanding is a nonstatutory concession given by HMRC [HM Revenue & Customs] to this one industry which favours it above all other sectors of the economy," Murphy told the TUC last week.
The memorandum of understanding is freely available on the government's own websites. But the document cannot be accessed by the public on the BVCA's website - it has set up a special pass code to restrict access to its members. Its spokesman last week preferred to describe the memorandum as a "clarification" rather than an exemption from tax legislation
This is no clarification: this is taxation on the basis of representation, not legislation. And it has to go.