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Tax Issues in Structuring Cross-Border Private Equity Funds

June 2009

By Ash Gupta & Timothy S. Wach

This article by Gowlings partners Ash Gupta and Tim Wach and others appears in Canadian Tax Journal (2009), Vol. 57, No. 1, p. 23-49. The full article is available through the Canadian Tax Foundation.

The authors provide an overview of the principal Canadian and certain us tax issues that are relevant in structuring multijurisdictional private equity funds. Alternative legal forms that a private equity fund may take, such as a partnership, trust, or corporation, are surveyed, and their respective advantages and disadvantages are considered. Key structuring issues, such as the nature and residence of target investors and the nature and jurisdictions of contemplated investments, are surveyed. As well, the principal tools unique to the structuring of private equity funds (and certain similar funds) are reviewed. These include such specialized techniques as inserting above-the-line and below-the-line blocker entities into fund structures to address risks to investors, such as effectively connected income and unrelated business taxable income. Another technique that the authors consider is the use of aggregator entities to address rebalancing issues that arise when funds have multiple closings for investors, particularly funds structured with multiple offering entities. The authors also address various considerations under the Canada-us tax treaty (1980) that are of importance because of the extent to which Canadian private equity funds look to the United States for non-Canadian investors and investments.

Read an abstract - Tax Issues in Structuring Cross-Border Private Equity Funds

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