Tax and the Strategic Investment Decision: Where, Why, When and Comparative Tax Elements in 15 Emerging Markets
By Ann Marie Plubell, Vice President, Regulatory Affairs, EMPEA
The complexity of tax considerations on the strategic decision to select and enter an emerging market cannot be denied. The value of early tax analysis from multiple perspectives for both the funds (here termed “GPs”) and the investors in those funds (here termed “LPs”) also cannot be denied. Early analysis influences positive outcomes for all involved throughout their relationships and well beyond. This article is not intended to be exhaustive and is not a substitute for the skilled and expert guidance of the tax professional. It is offered to introduce an orderly array of selected tax planning questions that inevitably arise when investigating a target market and offers a sequence of queries for investigation.
This article also includes a table comparing thirteen key tax elements in fifteen select emerging markets and the U.S. A GP’s and LP’s understanding of the tax treatment of the long-term investments that form the heart of a fund’s investment portfolio and the tax treatment of returns on those investments to all parties at each layer and each stage in a fund’s life and beyond and from each other’s perspectives is a dynamic process. Understanding facilitates alignment of interests from the earliest opportunity and minimizes surprises while providing the chance to craft what will happen when the unexpected inevitably does occur. We hope the article may also prove helpful to regulatory, policy and tax authorities interested in exploring ways to advance tax regimes optimal for catalyzing private equity investment into their countries such as those identified in the EMPEA Guidelines.