Private equity funds increasingly in the ATO’s spotlight

The Australian taxation Office (ATO) recently outlining its approach and specific resources allocated to working with private equity groups, as part of the broader Tax Avoidance Taskforce.

This increased focus appears aligned with other regulatory interest in private equity from other Commonwealth bodies, such as the Foreign Investment Review Board and the Australian Competition & Consumer Commission.

What you need to know

The ATO’s Private Equity program is part of a range of measures seeking to provide the community with confidence that Australia’s largest privately owned and wealthy groups are paying the correct amount of tax.

The program acknowledges the unique characteristics specific to private equity groups and their arrangements and offers a tailored approach to both domestic and international private equity participants across the varying stages of the investment cycle.

Key components in the program for domestic and international groups are as follows:

Domestic aspects

The ATO will apply a risk based approach in dealing with domestic private equity funds and participants. In considering risk profile, the ATO gives consideration to the specific activities and transactions entered into by the participants throughout the various stages of the investment life cycle.

Compliance activities targeting domestic private equity groups will be carried out through the ATO’s existing Tax Avoidance Taskforce programs, including the Medium and Emerging, Next 5,000 and Top 500 programs. These appear focused not only on portfolio assets, but also the structures adopted by private equity firms as private groups.

International aspects

The ATO’s approach to international private equity groups is broad reaching including global private equity firms, funds, their investors, and their Australian targets and portfolio entities, including initiatives at the following stages of the investment cycle:

• Pre-acquisition - dedicated ATO consultation resources on foreign investment proposals as part of FIRB approvals, consideration of relevant tax implications and making recommendations to the Treasurer in relation to imposing conditions associated with a proposed transaction where the circumstances warrant such restrictions.
• Acquisition - review activity in relation to specific acquisitions by global private equity funds and any associated tax risks identified.
• Holding period - ATO reviews and resources to obtain greater assurance over the holding period and providing a broader view across the investment lifecycle.
• Pre-exit and exit - foreign investment conditions may require engagement with the ATO prior to executing certain divestments.

BDO’s comment

Private capital and wealthy groups have been an area of emphasis for the ATO for some time now and the allocation of dedicated ATO resources to private equity groups is not surprising given its prominence in Australian capital markets.

For private equity funds entering into significant transactions both on acquisition and exit, it is essential that a proactive approach is applied in managing any tax obligations that arise including engaging with the ATO as engagement is now a standard expectation of the regulator.

How BDO can help

If you or your organisation would like assistance in managing your affairs, assistance with a significant transaction, engaging collaboratively with tax authorities or otherwise, please reach out to one of our private equity and M&A tax experts.