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Private equity groups fight tax changes in Japan

US private equity giant The Carlyle Group and JPMorgan Partners are two of ten private equity firms that have teamed up to lobby the tax bureau of the Japanese Ministry of Finance to abolish proposed tax changes, the Financial Times reported.

If the tax bureau puts its plans into practice, private equity firms will soon face increased capital gains tax from investments in Japanese companies and the rate of return could be reduced by as much as five per cent a year.

It is understood that the tax bureau's recent plans are a reaction to the transaction in which US Ripplewood made huge profits with its investment in Shinsei Bank and did not pay capital gains tax in Japan.

The group of private equity firms believes that the new regulation could drive investors out of Japan. Although the Asian market has become increasingly popular with investors, not all investors are looking mainly at Japan. The maturing markets of China, India and Korea offer new and often more lucrative alternatives.

Carlyle closed its first dedicated Japanese buy-out fund with about $470m of commitments early in 2004. Nearly 60 per cent of the fund was raised from Japanese institutions. Carlyle has had a presence in Japan since 2000.

JPMorgan Partners, the private equity arm of J.P. Morgan Chase, has an office in Tokyo and a team dedicated to the Asian market. JPMP Asia assists in managing the $1.1bn Asia Opportunity Fund.

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