Fiscal environment of, and corporate vehicles for, venture capital in the European Communities

European Commission Directorate-General For The Information Society And Media

Description

Research policy and organisation
Financial integration - free movement of capital

Informations

• Publié par: EUROPEAN-COMMISSION-DIRECTORATE-GENERAL-FOR-THE-INFORMATION-SOCIETY-AND-MEDIA
• Nombre de lectures: 8
• Langue: English
• Poids de l'ouvrage: 3 Mo

Extrait

Commission of the European Communities
INNOVATION
Fiscal environment of, and
corporate vehicles for, venture capital in the
European Communities Commission of the European Communities
INNOVATION
Fiscal environment of, and
corporate vehicles for, venture capital in the
European Communities
Deloitte Haskins & Sells
European Communities Office
Avenue Louise, 287
Boîte 7
B-1050 Brussels
PA n .. 'nGP. r:H"r<H
Directorate-General
i. 1 v Information Market and Innovation
1985 T/ ^bUH1U172*ÈTr Published by the
COMMISSION OF THE EUROPEAN COMMUNITIES
Directorate-General
Information Market and Innovation
Bâtiment Jean Monnet
LUXEMBOURG
LEGAL NOTICE
Neither the Commission of the European Communities nor any person acting on
behalf of then is responsible for the use which might be made of the
following information
Cataloguing data can be found at the end of this publication
Luxembourg, Office for Official Publications of the European Communities, 1985
ISBN 92-825-5702-2 Catalogue number: CD-NT-85-003-EN-C
© ECSC-EEC-EAEC, Brussels Luxembourg, 1985
Printed in Belgium CONTENTS
SECTION SUBJECT Page
I SUMMARY 1
II INTRODUCTION 4
Objective
Methodology
III DEFINITION OF INNOVATION 6
IV FISCAL NEUTRALITY FOR THE VENTURE CAPITALIST 7
The Early Stage 7
The Limited Partnership/Investor
The Corporate Investor 8
During the Life of the Investment 9
Taxation of Dividends at Payer Level
Taxation ofs at Recipient level 10
The Recipient as a Private Individual2
At Dis-investment 1
V SPECIAL GOVERNMENTAL OR SEMI-GOVERNMENTAL
GUARANTEES IN FAVOUR OF VENTURE CAPITAL 15
Types of Aid
The Dutch Particuliere Participatie
Maatschappij (PPM)5
The Guarantee versus Tax Deductions 16
VI TAX DEDUCTIBLE ALLOWANCE FOR INDIVIDUAL
TAXPAYERS 19
VII TRANS-BORDER SYNDICATES OF VENTURE CAPITALISTS 21
VIII RESEARCH & DEVELOPMENT INCENTIVES 22
Tax Measures to Encourage Individual Inventors -
the German and Japanese System
IX INTEREST DEDUCTIONS FOR INDIVIDUAL TAXPAYERS
ON BORROWING MADE TO ACQUIRE SHARES IN
COMPANIES 23
The Limited Deduction
The unlimitednSECTION SUBJECT Pa9e
X DEDUCTIBLE GIFTS TO UNIVERSITIES, RESEARCH
CENTRES AND OTHER RESEARCH AND DEVELOPMENT
INSTITUTIONS 24
Stimulation Research
Deductibility of Donations 2
XI FACILITATING MANAGEMENT BUY-OUTS6
The French Approach
The Belgianh
The Dutch Example 2
Using the Existing Legal Framework 27
XII CONCLUSIONS8
A "Tax-Friendly" Environment
Equal Treatment of Equity and Debt Financing 29
Tax Freedom for Dividends
Taxation of Capital Gains 30
Liberal Tax Treatment of Donations to
Universities
Trans-border Venture Capital
Unlisted Securities Markets1
XIII RECOMMENDATIONS 32
Ownership by a Company of its Own Shares 3
A Uniform Approach along the UK Business
Expansion Scheme Lines
Withholding Taxes on Venture Capital Dividends 32
A Tax Free Savings Plan for Employees 33
A Taxe Reserve for Management Buy-outs
Stock Options 3
Carry-back and forward of Losses 3
Dividends paid to Individuals
Amortization of Venture Capital Investments 33
Capital Gains Tax4
Donations to Universities and Research
Establishments
The Promotion of Research and Development
Investments
Corporate Vehicles5
Unlisted Securities Market 3
IV TABLES Page
1 SUMMARY OF TAX MEASURES AFFECTING VENTURE
CAPITAL 36
2 CLASSIFICATION OF COUNTRIES BY CONDITION 10
3N OFS BY METHOD1
4 CAPITAL GAINS TAX TREATMENT FOR A PRIVATE
INVESTOR 14
5 GOVERNMENT (OR SEMI-GOVERNMENT) GUARANTEE OF
50% OF THE LOSS REALISED ON PARTICIPATION
OF VENTURE CAPITAL6
6 COMPARISON OF GUARANTEE SYSTEMS BY COUNTRY 18
APPENDICES 55
A FISCAL INCENTIVES7
B CORPORATE VEHICLES 14
C UNLISTED SECURITIES MARKET 183 SECTION I
SUMMARY
1.1 The purpose of the study is "to review and assess the fiscal
environment and the corporate vehicles for venture capital
in the European Communities and to make such recommendations
as are appropriate ase appropriate"
1.2 The study is based on
- information on current venture capital operations in the
Member States and in other industrialised countries
-n arising from discussion with government
departments on their future initiatives and intentions
in the venture capital field.
1.3 The study notes that:
- few countries have established measures specifically for
venture capital operations although all countries, to
varying degrees, have laid emphasis on the provision of
some sort of aid to assist the overall economic life of
the country
- there is an increasing change of emphasis towards direct
tax incentives specifically to stimulate venture capital
operat ions
- no specific legislation or incentives currently exist to
encourage transnational venture capital operations.
1.4 The study :
- considers the definition of "innovation" as used by some
countries
- analyses the fiscal environment and corporate vehicles
of
. entrepreneurs
. venture capital managers
.el investors (individuals and
companies)
- assesses how far the current measures have been
successful in encouraging the development of venture
cap i tal
- appraises government future initiatives and intentions. 1.5 The information, analyses, assessments and appraisals are
interrelated and enable conclusions and recommendations to
be drawn.
1.6 The study concludes that the most important elements in
promoting venture capital are:
- a general economic "tax-friendly" national environment
- legislation aimed specifically at helping innovative
companies by direct tax incentives
- the equal treatment of equity and debt financing
- tax freedom (or substantial tax deductions) for
dividends received by individual shareholders from
venture capital investments
- favourable taxation of capital gains in respect of both
individuals and companies
- liberal tax treatment of donations in cash and kind to
universities and research establishments
- measures to promote trans-border venture capital flows.
1.7 The study recommends that:
- measures should be taken to liberalise the rules
governing the ownership by a company of its own shares
in those countries that do not permit it or place too
many restrictions on it
- a uniform approach be adopted within the Community on
the lines of the UK Business Expansion Scheme extended
to cover shares of all companies within they
- withholding tax rates on venture capital dividends,
including cross-border dividends, should be aligned
among the Member States to stop artificial
t reat y-shopping
- countries that do not allow the deductions of interest
paid by individuals on borrowings to acquire shares
should either introduce a deduction against taxable
income under certain specified conditions (e.g. fresh
capital) or liberalise the rates on interest
deduct ibili ty
- employees should be able to set up a tax free savings
plan from which they could borrow money to set up a new
business
- 2