EMPEA calls for improvements to legal regimes

Markets optimal for private equity investment protect GPs from double taxation and conform to international accounting standards, argued the EMPEA in a best practices report.

The Emerging Private Equity Association (EMPEA) has released a report outlining how frontier markets should shape their tax and legal regimes to encourage private equity investment.

Among the recommendations was for jurisdictions to foster a reliable framework for public offerings; limited liability protections for investors; and the introduction of different classes of equity securities and debt interests for securities holders. 

The ability to contract freely and a flexible regulatory framework that allows for different types of transaction structures would also encourage business development, said EMPEA. 

The group also provided some guidelines on how to limit the potential for double taxation of foreign investors, including the recommendation that anti-avoidance rules be implemented in an easily understood manner. 

“A clear and consistently applied set of requirements for claiming treaty benefits and a streamlined process for foreign investors to claim withholding tax refunds or withholding tax exemptions” would also limit double taxation, said EMPEA. The group noted that certain jurisdictions have required GPs with a multitude of beneficial owners (e.g., pension plans) to produce unnecessarily extensive information about their ultimate beneficial owners in order to claim such refunds or exemptions. 

With respect to accounting standards, emerging markets should adopt International Accounting Standards or US-focused Generally Accepted Accounting Principles, EMPEA said, arguing doing so creates a more transparent regulatory environment.

EMPEA also urged expropriation rules surrounding specific circumstances to meet international norms as well as a system that features a bankruptcy regime.

A full description of the guidelines can be found HERE