Our services include assistance with:
FIN 46 is a recent Financial Accounting Standards Board ruling that may require a private equity firm to consolidate or disclose entities in which it has a variable interest (i.e., a contractual or ownership interest in an entity whose value changes as the entity’s net value changes). Voting interests alone no longer necessitate the consolidation of such entities, although they must be considered under FIN 46. The ruling may also require a private equity firm to deconsolidate results formerly included in its financial statements.
FIN 46 may have a significant impact on private equity deal flow because of the uncertainty on how exactly it should be applied. Moreover, the FIN 46 rules are fluid—making deal reporting unpredictable.
Recent pronouncements under Financial Accounting Standards No. 141 and 142 require certain businesses to identify and separately state their purchased intangibles for financial reporting purposes. In general, this change in financial reporting requirements may provide an impetus to private equity taxpayers to seek tax planning with respect to transactions involving these separately stated intangible assets.
As part of the acquisition or divestiture of a trade or business, the relative value of identifiable intangible assets, such as customer lists and trademarks, has increased as a percentage of the total transaction value. A sale transaction may result in significant gains recognized with respect to these intangible assets. However, when a taxpayer is planning to divest one trade or business and acquire another, it may be possible to defer the gain recognition and treat the sale of certain intangibles and the purchase of "like" intangibles as a like-kind exchange under Section 1031.
PricewaterhouseCoopers (PwC) is available to help you identify and evaluate whether certain intangible assets are of a like kind. Therefore, even if you are exiting a line of business, it may be possible to defer a gain with respect to the value of intangibles (e.g., patents, trademarks, copyrights, etc.).
Effective cash flow management is crucial to competitiveness. A key value differentiator of PwC is our approach to this goal. Not only do we provide the tax, assurance and advisory services designed to meet your needs, but we also bring to your attention identified cash flow opportunities.
For example, one potential opportunity involves how a private equity firm treats expenses. An investment partnership generally remits management fees to its general partner or a management company that in turn performs the necessary management services. The management fees are generally deducted by the partnership as portfolio deductions. For individual investors in the partnership, these expenses would only be deductible to the extent they exceed 2% of adjusted gross income. However, capitalization of these expenses by the partnership may provide the individual investors with a more tax favorable outcome through reduced capital gains in the future.
Another potential opportunity entails not electing to amortize organizational expenses if all or a majority of the partners in your partnership are individuals. For individual partners, investment expenses will be miscellaneous itemized deductions subject to the 2%/3% limitations. If the investor partnership does not elect to amortize organizational expenses, such expenses will be non-deductible by the partnership and capitalized in the same way as partnership syndication costs.
Benchmarking is generally performed across three main levels:
- Within a firm against other units
- Within a certain industry
- Across industries
Comparing one firm or one industry against other industries helps one to identify issues and performance gaps that may not be apparent from a narrower perspective. At PwC, we help clients with benchmarking services designed to identify such issues. For many years, we have provided private equity companies with access to benchmarking data to make more informed management decisions
If you purchased companies that had previously invested in reportable transactions, you may need to check that those transactions have been properly disclosed to the IRS.
The IRS has specific regulations regarding when taxpayers must disclose participation in reportable transactions, when promoters must register tax shelters, and when material advisors must maintain lists of investors. These regulations require taxpayers that have participated in a reportable transaction to attach a disclosure statement to their tax returns. "Reportable transactions" are defined as:
- Transactions specified by the IRS as "tax-avoidance transactions" in published guidance (i.e., "listed transactions");
- Transactions offered under conditions of confidentiality;
- Transactions with contractual protection;
- Transactions generating a tax loss under Section 165 exceeding specified amounts;
- Transactions resulting in a book-tax difference exceeding $10 million on a gross basis; and
- Transactions generating a tax credit exceeding $250,000 when the underlying asset is held (or treated as being held) for 45 days or less.
Because of the broad applicability and difficulty applying the above six categories, some companies may have provided inaccurate disclosures, or failed to make required disclosures. Our tax professionals are available to assess these efforts, assess the risk and offer recommendations for improvements.
Management team members often commit significant funds to their private equity portfolios. Therefore, tax planning should be a key part of their strategy, as inappropriate tax structures can reduce the overall return realized by management. At the same time, portfolio growth relies on maintaining a strong and motivated management team. Since there can be differences in objectives between the private equity firm and portfolio company management, it is often appropriate to develop incentive plans that foster shared ambitions and benchmark favorably against their peers.
We recommend taking each investor’s individual tax structure into account and tying the equity portion of incentive plans directly to management results. With a more personal, one-on-one approach, we help clients develop equity plans designed to be fair to each participant and achieve their objectives.
Qualified pension plans may be a powerful tool for partners to increase income deferral opportunities and accumulate substantial retirement savings on a tax-favored basis. Qualified defined contribution plans have been utilized for this purpose by many partnerships, but in many cases, additional opportunities remain. Moreover, many firms have not recognized the greater potential that qualified defined benefit plans may provide. For many plan sponsors, there is an opportunity to increase annual individual partner deferrals by as much as $100,000 through a qualified defined benefit plan. While recent tax legislation creates additional deferral opportunities for partners, there are complex compliance requirements to follow.
To address the enhanced partner deferral opportunities available with qualified pension plans as well as the associated compliance issues, PwC offers a private equity partnership plan analysis. As part of the analysis, we assess the impact of new legislation on current plans, the potential for additional deferrals, and the potential costs of alternative approaches. In short, we help prioritize benefit plan goals and assist in the design and implementation of private equity pension plans.
As a private equity partner, there are many demands on your time. You may not always have time to devote to planning and administration of your personal financial and business affairs. What would be the effect to your personal wealth should anything happen to your business?
PwC’s personal financial services team helps business owners enhance and preserve their wealth by helping to manage risk and improve performance. We utilize a customized approach designed to reflect who you are and where you want to go.
Private equity firms are increasingly developing more sophisticated reward and share plans/programs to help attract, retain and motivate the right people to manage their portfolio companies. Well-drafted plans/programs may align the interests of portfolio company management with those of the private equity firm and, therefore, help increase company performance.
The need for sound plans and programs is even more apparent in portfolio companies operating across international borders. The complexities are increased—both in terms of coping with the different tax and legal systems and the varying practices on remuneration policy. At the same time, private equity firms must develop a method for effectively communicating the plans/programs to managers throughout the organization.
PwC is available to help develop efficient reward and share plans/programs with the overriding goal of increasing management efforts, decreasing operating costs and mitigating company risk. We take a holistic approach to planning that considers both implementation and communication.
A company in bankruptcy faces many tax challenges - uncertainties in many areas of the tax law, evaluating the tax elections available to bankrupt companies, evaluating structural alternatives, addressing the tax impact of the restructuring and trying to increase post-emergence cash flows. For many companies, these challenges come at a time when internal tax departments are particularly stretched by audits, tax assessments and personnel upheaval. Yet, failure to address the tax costs associated with a debt restructuring may impede a company’s ability to realize its tax attributes and diminish its prospective cash flows.
PwC uses a systematic approach to help identify and assist with the implementation of planning designed to create a tax-efficient emergence from bankruptcy. By using various analytical tools and models, we work with bankrupt companies (or, in many cases, the creditor group or investor that will control the company post-reorganization) to create a prioritized work plan to evaluate the tax implications of the restructuring and the potential planning opportunities with the goal of addressing the tax consequences of the restructuring and increasing post-emergence cash flow.
With PwC, you will have access to a multidisciplinary array of industry professionals who are dedicated to meeting the needs of the specific industries of your portfolio companies. Our industry-oriented professionals understand the issues, events and trends affecting their sectors and apply their experience to assist your portfolio companies in resolving challenges. Our ability to understand aspects of your portfolio company’s business, when combined with our functional experience, allows us to provide services designed to help you better meet your challenges and enhance your ability to build value and improve performance.
Many of your portfolio companies might be looking at international expansions for the first time. In these cases, turn to PwC for assistance. Our international tax network spans more than 139 countries. Through this global infrastructure, we keep up with emerging international tax developments and provide integrated tax research, planning, and compliance services for both US and non-US based businesses. Our international tax services include:
- Foreign desk program—local resources with international experience
- Outbound international tax planning
- World trade indirect taxes—customs, duties, VAT, etc.
- Global profit alignment (GPA)
- Intangibles migration
- Transfer pricing
- Cash repatriation planning
- Local country tax advice
- Global expansion assistance
To give our US-based multinational clients more immediate, real-time access to foreign international tax knowledge, we have established
US-based global tax groups for the Asia-Pacific, European and Latin American regions. These groups are staffed with seasoned tax professionals on assignment from their home countries who work closely with US tax professionals with deep foreign tax and business knowledge.
With over 20 countries represented by over 60 professionals from coast-to-coast, our global tax group specialists advise on matters such as corporate restructurings, acquisition and divestiture planning, holding company strategies, financing arrangements, income migration techniques and many other facets of international tax planning, and routinely address and resolve complex, global, regional and country-specific tax and business issues for our US-based multinational clients.
