Venture capital action urged

Date: 21/05/1998

By Peter Chapman

EU venture capitalists are calling for European Commission proposals to kick-starting the Union's markets by slashing the taxation red tape facing investors.

The move follows a March policy paper which called on member states to dismantle fiscal and regulatory obstacles to cross-border investment in venture funds.

Taxation Commissioner Mario Monti's aides say the issue will be discussed by EU finance ministers at their next meeting on 5 June and will also be on the agenda for the EU summit in Cardiff ten days later, with the onus on member states to come up with their own strategies.

But experts at the European Venture Capital Association (EVCA) want the Commission to go further, insisting it should take a leading role in moves to encourage member states to give more support to venture schemes.

“Some member states are still clarifying with the Commission whether it should play a role or not. Our view is that if member states oppose this they would misunderstand how important this issue is,” explained one EVCA official.

He said the Commission had a key role to play in putting in place the 'tax transparent' regime which the EVCA believes is needed to bridge the enormous gap between Europe and the US in the take-up of venture capital.

“The tax issue is very technical, but is highly relevant. What it is all about is to promote a pan-European fund structure, and transparency is a key issue if you want jobs to be created in EU small and medium enterprises,” he added.

At present, many venture funds are set up as simply structured local companies. This means tax is normally payable by the fund as well as by investors.

The EVCA argues that pension funds, banks and institutions which invest via a venture capital fund should be no better or worse off than if they had made an investment directly themselves, without the fund as an intermediary. It insists tax liability should pass directly to fund investors, without the fund paying taxes on either capital gains or income.

Without tax transparency, argues the EVCA, big investors are deterred from making key investments in potentially high-growth small companies and are more likely to go for bonds or equities quoted on stock exchanges.