ESVCLPs and some practical considerations

ESVCLPs and some practical considerations

James Momsen provides some practical considerations regarding early stage venture capital limited partnerships and the newly released ATO guide.

1000

Director, Tax

KPMG Australia

Contact

Also on KPMG.com

Business people talking

The Australian Taxation Office (ATO) on 13 February 2017 released a concise guide on the early stage venture capital limited partnership (ESVCLP) program including those rules introduced by Innovation Agenda amendments in 2016.

However, no insights into some of the practical issues currently facing ESVCLPs, which continue to be a source of uncertainty for the venture capital (VC) industry, are discussed.

Eligible venture capital investments and FinTech

In its March 2016 FinTech statement, the Government committed to encourage investment in FinTech firms by ensuring that the tax concessions are available for venture capital investments in FinTech startups, a commitment which remains to be enacted.

Whilst the ESVCLP rules do allow for a general partner (GP) to seek a ruling on whether FinTech is an eligible ESVCLP investment, inevitably these processes create delay and uncertainty that critically, for FinTech startups, create liquidity issues, or worse, loss of first mover advantage.

GP’s must continue to exercise judgment as to whether the FinTech start-up is eligible for investment, in the absence of administrative guidance consistent with the Government’s stated (but unenacted) policy, and if in doubt consider a ruling whilst managing their investment processes.

The $250m total asset value threshold

Calculation of ‘value’ and timing

There is confusion as to what ‘value’ means in the context of the $250m total asset value threshold – does it mean ‘market value’ of the assets or alternatively ‘book value’? Evidently, the outcomes of these respective terms can be significantly different (i.e. consider differences in recognition of internally generated goodwill or intangible assets).

Relevantly, the Explanatory Memorandum would appear to support the view it is ‘book value’ given the context in which the phrase “total value of the entity’s assets” is used in the ESVCLP rules. However, GPs should continue to be aware of when the $250m threshold might be exceeded (on either approach) and seek advice as the application of the new 6 month rule to provide certainty to their investors on any future disposal of the investee company.

Tax Insights

KPMG Australia's analysis of tax issues and developments.

 
Read more

Deal Advisory – Tax

Deal Advisory – Tax

KPMG offers a range of tax services to corporate and private equity investors to help with local and cross-border transactions.

Connect with us

 

Request for proposal

 

Submit

KPMG’s new-look website

KPMG has launched a state of the art digital platform that enhances your experience and provides improved access to our content and our people, whatever device you are on.

 
Read more