TPG gets whacked by a $628 million tax bill

Posted Nov 25th 2009 1:30PM by Tom Taulli
Filed under: Private Equity

In October, private equity powerhouse, TPG, scored a big win as it took Myer (which is a retailer based in Australia) public. The gains came to a mouth-watering $1.46 billion.

But now there's a huge problem; that is, the Australian tax authorities sent TPG a bill for a whopping $628 million. Its for back taxes, as well as penalties.

Basically, the Australia authorities think that TPG has used dubious tax shelters. Also, the thinking is that the gains are not capital gains (which means the tax rate is higher).

Yet, it's common knowledge that private equity firms use sophisticated tax havens. The reason is simple: these funds pass through their profits and losses to their limited partners, who pay taxes. Obviously, if there are several layers of taxation, this would make private equity much less attractive.

Something else: capital flows to the places with the best net returns. So, if Australia plans to sock private equity, there's a good chance that capital will dry up -- and quickly.

Tom Taulli is the author of various books, including The Complete M&A Handbook.

Tags: Australia, inthenews, private equity, taxation, TPG