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A new private equity law for Germany?30/05/2007. Source: SJ Berwin. André Gloede, Christian Schatz
 After nearly a year and a half of discussion, says SJ Berwin, the German Ministry of Finance has published a key paper on a proposed private equity law and other private equity related issues. This paper was eagerly awaited, and could have offered a solution to a number of longstanding problems for the industry. But, unfortunately, it does not.
If it were used as the basis for the new law, Germany would undoubtedly miss a unique opportunity to modernise its approach to private equity. However, it is understood that this paper is actually intended as the basis for a wider discussion, which leaves room to hope for a more positive outcome.
The German Ministry of Finance says in the paper that it proposes to enhance the legal and tax environment for seed funds only, by introducing a special regime for them. If certain conditions are met, seed funds will come within the regulatory ambit of the German federal banking authority and will then benefit from tax exemptions.
The crucial point is that - as laid out in the paper - the new regime will not apply to all venture funds, or to any buy-out funds - and not even to all seed funds, since the suggested criteria are very narrow: a portfolio company's equity before the investment must not exceed €500,000, and the company must be less than seven years' old.
This is very disappointing, especially since the German Ministry of Finance itself engaged experts from the University of Munich to undertake an academic review of the German private equity industry. Those experts generally concluded that private equity has a positive impact on the German economy. Their main recommendation was that the legal and tax environment needs to be improved.
It clearly remains the case that some German politicians are deeply sceptical towards private equity. This paper, therefore, seems to be founded on political expediency, rather than on economic reality.
However, several German ministries had a meeting on Wednesday to discuss this issue again, and Michael Gloss - the Federal Secretary for Economics - is strongly backing private equity. The good news is that there is, in fact, much in the Finance Ministry's paper that could be built upon, if the principle were accepted that buy-out funds are not the "bad guys".
And there is, of course, considerable evidence that, far from being bad, they are helping to create jobs and boost productivity in Europe. So, as the wider discussion begins, perhaps all is not yet lost.
André Gloede and Christian Schatz
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com
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