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Private equity
Business report
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these guidelines were issued very late, meaning we had to react quickly before the deadline. Therefore, it was often a very complicated task to anticipate whether an arrangement would be reportable or not. On top of that, there are some European countries whose tax administrations seem to want to apply pressure on intermediaries, threatening them with criminal liabilities. Some were particularly tough regarding the reporting required. Our role, as advisers, was to decide whether or not all the technical points had been fulfilled in each instance and to define in practice how the main benefit test applies.
How did the PE industry prepare for the DAC6 directive? They had to monitor transactions over the previous two years, which required a significant amount of complicated, detailed work. Advisers had a major role here to work out on behalf of clients whether or not arrangements and transactions could be considered as reportable under DAC6. The main challenge was that many countries have a range of different interpretations for each case.
Why has this presented such a challenge for the private equity fund sector? The challenge for asset managers and their advisers was to review an extremely
How did you find working with different national authorities on this? There was often a lack of clear guidance from tax administrations, and sometimes
PRIVATE EQUITY ASSETS UNDER MANAGEMENT IN $BN* The total value of PE funds more than doubled in the five years to 2020. Source
Preqin
5,000 4,000 3,000 2,000 1,000 0 Dec 2014
Dec 2015
*Excludes fund of funds and secondaries
Dec 2016
Dry powder
Dec 2017
Dec 2018
Unrealised value
Dec 2019
Sept 2020
Assets under management
large number of transactions and structures. It required understanding of how the DAC6 rules applied country by c ountry, we needed to communicate and c oordinate with other intermediaries involved, to define new internal policy, and sometimes to answer questions from investors and adapt fund documentation to be DAC6 compliant. The volume of work to be done, without or with very few official and clear guidelines, was challenging. This was even more challenging due to the covid-19 pandemic. What have been some of the main challenges specifically? For me, the main challenge is that DAC6 creates a huge amount of compliance work for asset managers. The directive requires the coordination of one set of reports in Europe, which requires very strong coordination if it is to work as intended. Have there been any major effects on fundraising, or is it too early to tell? Inevitably, there have been some discussions between investors and asset managers about the implications of DAC6. Some investors have requested to be informed in case a DAC6 report is filed. Certain investors also ask for best efforts to be made to avoid the structure triggering a DAC6 reporting requirement. On the other side, asset managers ask investors, in the subscription documentation, whether the investment into the fund would be subject to DAC6 reporting in the investor’s country, as it is required by certain member states. Yet for the moment, there does not appear to have been a significant impact on fundraising. Nevertheless, we will have to wait and see how the market will react in the coming months and years to judge the full range of impacts on fundraising and client appetites. Interview STEPHEN EVANS
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What impact has DAC6, an EU tax transparency directive, had for crossborder private equity funds? Hugues Hénaff, partner at Atoz Tax Advisers, gave an overview of the preparatory work, challenges encountered and future outlook.
“An extremely large number of transactions and structures”
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MAY 2021
Hugues Hénaff