Blackstone chief warns of Australian “chill”

Blackstone Group chief Stephen Schwarzman warned Monday about the increasingly unfavourable private equity environment in Australia, reiterating industry concerns over new tax rules and an ongoing dispute with private equity firm TPG.

Schwarzman: tax will bring 'chill'

In December the Australian Tax Office said that in some cases assets from the sale of private equity investments could be treated as ordinary income, which is taxed at a higher rate than a capital gain. It also said that an ownership structure employing more than one company offshore – in jurisdictions like Luxembourg – for no commercial reason would be considered as a tax avoidance strategy and exempted from any tax treaties in place.

Both decisions come, not surprisingly, amid the tax authority’s efforts to both freeze TPG’s Australian accounts, over claims the firm owes unpaid capital gains taxes, and enforce additional tax avoidance penalties on the firm, which domiciles some of its funds and related companies in offshore jurisdictions including Luxembourg and the Cayman Islands.

In an interview with Reuters at the World Economic Forum, Schwarzman said the standoff with TPG has affected Australia’s image among foreign investors. “What it will do of course will be to dramatically chill any future investment until this matter is resolved one way or another,” he said.

Schwarzman’s warning is similar to those of the Australian Private Equity and Venture Capital Association, which has said that foreign investment in the country will retreat significantly and called on the government to step in and legislate tax policy so that the ATO’s draft rulings do not stand.
Australia’s government trade agency, Austrade, is in fact currently reaching out to global private equity firms for feedback on whether they plan to pull back their investments, while another report dealing with the impact of such issues is being compiled by Treasury Secretary Ken Henry.