Defending the Indefensible: Permira, KKR, 3i, Carlyle and Blackstone

Today I will be reporting live-ish from the Treasury Select Committee, part of the UK parliament, as Damon Buffini, managing partner of Premira, Dominic Murphy, partner at KKR, Philip Yea, chief executive of 3i, Robert Easton, managing director of the Carlyle Group and David Blitzer, senior managing partner of Blackstone attempt to defend what the UK press and parliament are calling “indefensible” tax advantages for the private equity industry.

If the BVCA’s turn in front of this committee a few weeks back is anything to go by this could very well be a bloodbath. But unlike the affable former BVCA chief, Peter Linthwaite, Buffini, in particular, certainly doesn’t pull any punches. The BVCA has tattled to its big brothers and they are now after the schoolyard bullies. But these bullies are media savvy and private equity firms have virtually made a sport of avoiding the press. So we’ll wait to see the spin – shall we?

So what is all this sabre rattling actually about? For the past 20 years private equity firms have paid little or no tax on carried interest thanks to the little known “base cost shift” law that came into being in a 1987 Revenue Memorandum on private equity. The law allows partners to offset 20% of the initial price paid for the assets. By employing this rule partners can reduce the amount of capital gains tax on carried interest, normally 10%, to well below that point.

But labour unions and now the parliament argue that not only should this special treatment for private equity firms be abolished, as the industry is now established and could no longer be considered nascent, but that carried interest should be taxed as income at 40% rather than capital gains at 10%.

The private equity industry says its doesn’t receive any special treatment and that these tax advantages apply to all entrepreneurs. And everyone else says: “Dream On.”

The saga will begin to unfold at 3:15 GMT/ 10:15 EST. Stay logged into the Hub for all the latest. For more European News head to