It seems that the Australian Taxation Office (ATO)’s draft tax determinations on the taxation of gains made by non-resident private equity investors have attracted considerable foreign interest.

Stephen Schwarzman, the CEO of one of the most powerful private equity firms expressed his concern about 2 recent ATO draft tax determinations dealing with the taxation of gains on the disposal of target assets and the application of Part IVA to treaty shopping arrangements.

He said that the ATO’s view that the profit on the sale of shares in Australian public companies made by nonresident private equity investors, whose regular business is restructuring and floating companies, will be treated as ordinary income, and not as capital gains, will dramatically chill any further investment until this matter is resolved.

It will be interesting to see how the Government will solve this balancing act of attracting foreign investments while protecting Australia’s tax base.

We have commented previously about the ATO bungled action on the Myer float, which started this.

(Stephen Schwarzman, CEO of the Blackstone Group, World Economic Forum, Davos, Switzerland, 2 February 2010)