The PE industry floating surplus tax levy is only a legend the new rules are intended to clarify tax standards

Recently, a report on the PE industry floating tax levy of the legend detonated PE industry, and soon broke news, the rumor is not true, it is likely just a false alarm.

A source close to the new deal, the IRS told the newspaper that it was the content of the draft "Partnership and partner income tax implementation" that was being drawn up by regulators and that the bill was complete; "This bill is still in perfect, and did not say to the PE investment surplus levy 40% tax, cause so big controversy or the result of the erroneous assertion." "The person said.

It is understood that the real intention of the New deal is to clarify the tax system, especially the current limited partnership tax levy norms, rather than increase the PE industry tax. However, a number of institutional leaders still expressed concern that the norms of the original intention if the tax increase, it would have suffered a capital winter of the PE industry "worse."

Debate

Recently, there is news that the IRS is expected to introduce a draft in May, which the partnership private equity investment institutions in equity investment, Non-monetary asset valuation and other aspects of tax collection and management has been included in the agenda. Even rumors that "the draft" will be 35% or 40% in the IPO when the book float to the VC institutions to collect income tax.

The news of the PE industry immediately in an uproar, the controversy focused on three areas:

The first is the tax purpose. A tax expert said that tax is a means of macro-control, which is to regulate the distribution and flow of capital among various industries. In recent years, the investment and financing industry, the ultra-high profits caused by the national PE tide, so that some low yield, profit growth slow industry by capital in the cold. It is imperative to increase PE tax, which aims to guide the flow of capital. The PE industry's view is that this kind of guidance will make industrial finance more difficult. "PE/VC has contributed to the transformation of the national innovation industry. "The key to the new tax system being challenged is that" PE is a risky investment, and many projects will lose money if they don't do well, "says Xiaoshuirong, chairman of Shenzhen Creative Orient Investment cable company.

Another issue is whether IPOs should be taxed. Qing Ke Research Center analyst Lin Wanting that, although the PE book profit increased, but PE did not realize the exit, did not produce substantial gains, especially many PE actually quit when the return is lower than the IPO when the book returns, whether there is a drawback mechanism has yet to be negotiated.

At the same time, there are concerns about repeated taxation, the current "Partnership Enterprise Law" stipulates that no income tax is levied on the partnership itself, and the partnership is the taxpayer of each partner. Most of the domestic PE in the form of partnership, the Fund's overall tax is 5% business tax (from the fund management fee income extraction) +LP 20% Income tax (GP 5%-35%) and other two parts. The new tax system will increase this tax, probably higher than the company's PE fund (25% Income tax and 5% business tax), the industry is worried that this will be forced into the partnership of PE funds to select the company system, which is currently prevalent in the PE industry Limited Partnership system will be a serious blow.

According to our correspondent estimates, the Qing Division 2011 released PE book Return 4.61 times times as an example, if the "new tax" implementation, this return will be pulled directly down to 3 times times. "Some investment institutions with high-risk projects are most likely to lose money." "A PE practitioner said.

According to Chingko Analysis said: "The IPO enterprises to increase income tax, will be greatly diluted VC/PE fund profit space, especially for the middle of the performance of funds, will face a fatal blow." So ' draft ' landing will accelerate the VC/PE industry shuffle. ”

The new rules are meant to clarify the tax system

As of press, the news has not been confirmed by the State administration of taxation, all kinds of rumors and disputes are still fermenting, but these disputes may be just a false alarm.

On the afternoon of April 19, Zhejiang Business Venture Chairman Chen Yue Meng, Han capital partner Qian Cofeng and other people said publicly, have received the various levels of the founding and Equity Investment Association, the State Administration of National Taxation Conference invitation, the theme is for the proposed "partnership and partner income tax implementation measures" to solicit views from the industry.

The real intent of the new rules is to clarify the current chaotic tax regime for PE, according to the people familiar with the matter.

Because of the short development of domestic PE industry, the limited partnership system is also a new thing, the tax levy on the limited partnership system has not been very clear operating norms, so that there are different forms of expropriation, the tax rate is completely a huge difference.

According to reports, the regulatory authorities had already issued "on the Partnership corporate partner income Tax Notice", the Notice clear partnership "first after the tax" of the principle of taxation, the partnership itself is a tax-free subject, levy is levied at the partner level. However, the specific tax rates and calculations have not been specified, so the "Partnership income tax Scheme" will clearly regulate the details of the tax on the partners, including tax rates, methods of taxation.

At present, all over the basic clear, limited partnership PE itself is not as an income tax payers, take the "First division after tax" way by the partners to pay individual income tax or enterprise income tax, but for the partner's tax policy is very different, especially for the GP level.

At the LP level, local Natural Limited Partners (LP) who do not participate in business operations are basically taking their investment income in accordance with the "interest, dividend, dividend income" and other projects to levy a 20% proportional tax rate, but many places are in the form of tax concessions in the implementation of the difference. For example, Xinjiang, which recently became a huge attraction for PE institutions, stipulated that after paying income tax according to the policy of "First division after tax", the autonomous region would reward 50% of the local financial contribution, and the incentive funds would be paid by the financial Department of the Tax Office. According to the provisions of this paragraph, the partnership of PE, if the partner is a natural person, the actual rate of personal income tax is 16%.

And in the tax on the GP level, the different local policy differences are more obvious, such as Beijing local GP can also be levied at 20% tax rate, and Shanghai is according to "the production and operation of individual industrial and commercial households," according to the 5%-35% of the five-level excess progressive tax rate of the levy of a Corporate Partners and company PE management companies are taxed according to the company law. Whether it's 20% or the top 35% tax rate is a huge impact on GP's earnings.

These huge tax differences have often become a weapon in the scramble for PE resources, but the central regulatory authorities initially expressed dissent. National Development and Reform Commission Financial Secretary Liu Jianjun 19th in a PE industry seminar said: "A number of local governments in some institutions, the introduction of several policies to promote equity investment development." We have consulted the national finance and taxation departments, these local policies are illegal. ”

Liu Jianjun that although the State agreed to adopt a "First Division tax", the calculation of its specific taxable income should be carried out in accordance with the individual income tax regulations issued in 2000 on individual proprietorship and partnership investors. "According to the 2000 policy, the individual investor's tax rate, whether you are a general partner or a limited partner, must be taxed at a rate of 5% to 35% according to the income of the individual business." ”

"The PE industry now has a variety of organizational forms, various forms of taxation are not the same, many local governments do not have a clear collection details have different grasp, coupled with the local government to encourage the development of PE industry mentality has introduced a variety of tax concessions, therefore, PE industry tax Collection management is very backward." The person said.

Because of this, although the PE floating tax is only rumored to hit, but the standard PE tax banner has been quietly opened.