http://www.privateequityweek.com/pew/freearticles/1110466030888.htmlThe rising tide of resentment in Asia over non-tax paying, U.S.-based private equity firms has reached Korea.
Korea's National Tax Service announced last week that it is investigating several U.S.-based private equity firms, following several prominent and lucrative exits in the country. Firms identified by the Korean Herald as under investigation include Newbridge Capital, The Carlyle Group, Lone Star Funds and CitiGroup, among others.
Similar scenarios are taking place in Japan and China. Both countries are looking at forming new tax regulations that would impact U.S. private equity firms doing business in these countries. The push for the tax measures are largely due to the many profitable deals being made by U.S.-based private equity firms. In China, for instance, eight VC-backed Chinese companies went public in 2004 on U.S. exchanges, including the $1.8 billion IPO of Semiconductor manufacturing International Corp. (NYSE: SMI), which was backed by a number of Asian and U.S. firms.
In Korea, though, the issue is becoming volatile.
One source told PE Week that tax authorities "invaded" Carlyle's offices in Seoul last week, demanding access to documents and seizing files, as part of an investigation to determine whether the firm qualifies as a permanently domiciled investment company in Korea. If so, the firm may be held liable to pay taxes on deals, such as its lucrative $2.7 billion sale last year of KorAm Bank to Citigroup. Carlyle had invested in KorAm Bank in 2000 and again later in a consortium with JPMorgan Partners for a total investment of $435 million, which means the exit created a 6X return.
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oh goodie - sock it to them.
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