Private investment funds. I work with many venture capitalists and other fund managers to put together tax-optimised funds in various sectors – buyout, venture, credit, infrastructure, natural resources, funds of funds and so on. I also work with institutional investors – including pension funds, university endowments, sovereign wealth funds and funds of funds – to protect and understand their tax positions when investing into funds. And I work with secondary funds when they buy and sell portfolios of funds, which is an interesting combination of funds work and M&A work.
If you could make one change to tax, what would it be?
Speaking as someone who advises on US tax, it would be great if the US state taxation system were more uniform, but that goes right to the heart of federalism and is kept firmly within the realm of the politicians.
Are there any new rules that are causing a particular problem?
Under the Tax Cuts and Jobs Act 2019 (the TCJA), the US government outsourced more of its enforcement to the private sector, similar to the FATCA rules a decade ago. When non-US partners sell interests in partnerships (such as private investment funds) that hold certain types of assets, they are subject to US tax. The TCJA requires that buyers of such interests withhold tax from the amounts they pay to those non-US sellers. This has created a boom in business for tax lawyers on secondary transactions as often – for very legitimate reasons – the ultimate underlying assets are held through multiple entities where the seller has little visibility or control, resulting in significant uncertainty. The vexing part is that clients want to do the right thing, but the rules do not fully allow them to obtain the information needed to do so.
What issues have been clients been raising recently?
Everyone wants to know where tax will end up under a Biden administration. We know that ‘carried interest’ – the disproportionate interest in profits of a private investment fund held by fund managers – will likely be on the chopping block again. Historically, carried interest has been taxed on a pure flow-through basis so that if the fund generated long-term capital gain from the sale of its investments, individual US fund managers would pay tax at preferential long-term capital gain rates (in addition to paying tax at ordinary income rates on their annual management fees/salaries). Under the TCJA 2017, this preference was limited to capital gains on investments held for over three years, rather than one year. Other proposals have been on the table for over a decade to have a greater amount (or the full amount) of carried interest taxed at higher ordinary income rates.
I represented a trade organisation for the US venture capital industry for many years in connection with their efforts in lobbying Congress on this issue. When the first carried interest bills were introduced (but ultimately not passed) in 2007, my client was right on the mark when she said now that draft legislation exists, the issue will never be fully off the table.
You might not know this about me but...
At one of my lobbying meetings in Washington DC, I fell in love with a Congressional staffer’s shoes. When I went to find them in a shop, I discovered they were (terribly expensive) Gucci, putting an interesting spin on the title of a book about the fierce corporate lobbying efforts behind the landmark Tax Reform Act of 1986, Showdown at Gucci Gulch.
Private investment funds. I work with many venture capitalists and other fund managers to put together tax-optimised funds in various sectors – buyout, venture, credit, infrastructure, natural resources, funds of funds and so on. I also work with institutional investors – including pension funds, university endowments, sovereign wealth funds and funds of funds – to protect and understand their tax positions when investing into funds. And I work with secondary funds when they buy and sell portfolios of funds, which is an interesting combination of funds work and M&A work.
If you could make one change to tax, what would it be?
Speaking as someone who advises on US tax, it would be great if the US state taxation system were more uniform, but that goes right to the heart of federalism and is kept firmly within the realm of the politicians.
Are there any new rules that are causing a particular problem?
Under the Tax Cuts and Jobs Act 2019 (the TCJA), the US government outsourced more of its enforcement to the private sector, similar to the FATCA rules a decade ago. When non-US partners sell interests in partnerships (such as private investment funds) that hold certain types of assets, they are subject to US tax. The TCJA requires that buyers of such interests withhold tax from the amounts they pay to those non-US sellers. This has created a boom in business for tax lawyers on secondary transactions as often – for very legitimate reasons – the ultimate underlying assets are held through multiple entities where the seller has little visibility or control, resulting in significant uncertainty. The vexing part is that clients want to do the right thing, but the rules do not fully allow them to obtain the information needed to do so.
What issues have been clients been raising recently?
Everyone wants to know where tax will end up under a Biden administration. We know that ‘carried interest’ – the disproportionate interest in profits of a private investment fund held by fund managers – will likely be on the chopping block again. Historically, carried interest has been taxed on a pure flow-through basis so that if the fund generated long-term capital gain from the sale of its investments, individual US fund managers would pay tax at preferential long-term capital gain rates (in addition to paying tax at ordinary income rates on their annual management fees/salaries). Under the TCJA 2017, this preference was limited to capital gains on investments held for over three years, rather than one year. Other proposals have been on the table for over a decade to have a greater amount (or the full amount) of carried interest taxed at higher ordinary income rates.
I represented a trade organisation for the US venture capital industry for many years in connection with their efforts in lobbying Congress on this issue. When the first carried interest bills were introduced (but ultimately not passed) in 2007, my client was right on the mark when she said now that draft legislation exists, the issue will never be fully off the table.
You might not know this about me but...
At one of my lobbying meetings in Washington DC, I fell in love with a Congressional staffer’s shoes. When I went to find them in a shop, I discovered they were (terribly expensive) Gucci, putting an interesting spin on the title of a book about the fierce corporate lobbying efforts behind the landmark Tax Reform Act of 1986, Showdown at Gucci Gulch.
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