PRINT THIS PAGE Supporting small companies09/01/2008. Source: SJ Berwin. Simon Witney 
If the focus of recent media attention has been on the very largest private equity deals, and the industry's spokespeople have been busy dealing with the fallout, it is perhaps reassuring that the plight of smaller, fast growing companies remains firmly on the lobbying agenda. At the end of last month, the British Private Equity and Venture Capital Association (BVCA) wrote to the UK government pointing out that a range of fiscal incentives aimed at driving forward their "enterprise agenda" are, ironically, being denied to some of the most promising and fastest growing businesses in Britain - those that have attracted venture capital funding.
The BVCA points out that private equity firms apply stringent investment criteria to companies that they back, and that they usually have "excellent prospects for growth". But the way in which eligibility for certain tax reliefs works means that these venture backed companies are often disqualified from the very benefits that were designed with them in mind. This anomalous position is not new, and it is not the first time that the industry has identified it, but - if the government is serious about supporting fast growing companies - it is surely time to fix it.
The problem - which is, in part, a Europe-wide one that stems from a definition of "small and medium sized company" (SME) adopted by the European Commission - is in trying to ensure that companies which are themselves small, but which are part of a larger group, are not able to take advantage of reliefs designed for independent businesses. So, for example, tax credits for companies that invest in research and development, and lower tax rates for businesses that are below a certain size, are only available to stand-alone entities.
The legislators' concerns are legitimate, and certainly need to be dealt with by the rules. But those rules also have to recognise the way in which venture funds operate - and should not treat their portfolios as "groups", because they are obviously not operated as such.
This seems like an easy win for the government, as does action on its procurement programme - also highlighted by the BVCA in its letter - and so it is frustrating that both remain on the "to do" list.
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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