A killer blow?
According to a number of industry commentators, certain fiscal and regulatory issues could potentially halt the development of the private industry in Switzerland. Following a recent judgement, the purchase price of a company, if financed by the vendor, will be taxed as income.
Opinion is divided as to the impact this may have on the Swiss private equity
industry. Some feel that it may not be very significant because, although it will affect small companies, many companies targeted by private equity managers have the cash to buy their stock outright. Others think it
could hamper the development of the industry, as it means that, in a buyout situation, general partners cannot use the cashflow from future earnings to amortize the debt.
Venture Partner’s Lattmann says: “This would end up killing the MBO/LBO scene altogether and could be the death of our industry in Switzerland.” SECA is currently battling against this ruling. According to Van Swaay of Pictet, Switzerland lacks a good Swiss private equity fund structure. For private equity investment, the establishment of a Swiss business vehicle, which is both tax transparent and has limited liability protection for investors and the manager as well as the adoption of a professional investor exemption to the distribution rules seems to be a clear priority. SECA is currently fighting for a Swiss limited partnership structure, so that investors can invest via fund structures other than Luxembourg or Dublin vehicles.
The cumbersome cantonal tax system is also an issue with private equity practitioners, who would appreciate a simplified tax system. “In Switzerland, it is very difficult to obtain good fiscal treatment of carried interest,” says Van Swaay.
Leman Capital’s Betschart says: “The potential political isolation of Switzerland is also an issue that could be detrimental to the development of the industry.” Although there is a series of bilateral agreements with the EU, some political parties have launched a referendum on accession with voting due to take place later this year. There is a possibility the Swiss market will be impaired in its development because of these kinds of political decisions. APAX’s Burger-Calderon continues: “It is hard to say how the Swiss private equity market will develop but it is possible that Switzerland will become increasingly marginalised due to its unwillingness to play a role within the EU.”