Private equity: Guide to key management tax issues in Europe

Welcome to the first edition of our guide for investors, managers and their advisors: Key Management Tax Issues in Europe. This guide is a tool to help identify potential tax issues and provide solutions at an early stage in a transaction or bid. Based on our extensive pan-European experience, we have identified 12 common issues for management and provided succinct, practical answers to those questions across 16 key European jurisdictions.

The skill and commitment of the management team is often an important consideration for investors before they make an investment decision. Considerable care is applied to align the interests of key employees with the fund through the equity structure. However, tax inevitably affects the real outcome for individuals. Making an early assessment of the impact of taxation is important for a single jurisdiction, but for a team based in several countries (in Europe and beyond) it is a daunting task. It may be some time before a detailed tax analysis is carried out, but it is important to minimise unexpected issues occurring late the process.

Themes include:

Managers as sellers

• What are the risks of a dry tax charge on share or loan note consideration? Does roll over apply and what are the conditions?
• How are deferred payments and earn outs taxed – up front, when received, or on the discounted present value?
• How are costs indemnities treated?

Managers as subscribers

• Do managers typically invest directly or through an intermediate vehicle?
• How are ratchets treated – capital or income, or do special carried interest rules apply?
• How are subscriptions at undervalue and loans to managers treated?

Use our guide to think ahead, brief ahead and stay ahead.

This guide is a starting point, but each party must take detailed, up-to-date advice on the specifics of any transaction. If you wish to speak to any of our advisors, their contact details are set out towards the back of this guide.