EVCA comments on the tax and legal environment for private equity investment

02 August 2004

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EVCA has published its second assessment of how favourable or unfavourable tax and legal environments are for the development of private equity and venture capital, and for promoting entrepreneurship and competitiveness across Europe. In total, 19 of the 25 EU member states were surveyed along with Norway and Switzerland. Of the recent accession countries, The Czech Republic, Hungary, Poland and the Slovak Republic were included. The assessment evaluated 13 indicators favourable to both the supply-side (ie investors in private equity and venture capital funds and fund managers investing directly in companies) and the demand-side of private equity and venture capital (ie the entrepreneurs receiving private equity and venture capital funding).

Overall, the assessment showed that on a national level numerous tax and legal restrictions still impede fundraising for private equity and venture capital funds and investments made by those funds in European companies. In addition, on a pan-European level, serious discrepancies between countries hamper a higher level of cross-border activity. This is a basic obstacle to the creation of a more entrepreneurial and competitive environment in Europe. EVCA's 2003 figures from across Europe show that although cross border investments were up from 2002's 9.9% to 13.2%, the majority of investments (82.2%) were still made within the country where the private equity company making the investment is located.

Key findings outlined that the UK, Luxembourg and Ireland are the countries with the most favourable environment for the development of the private equity and venture capital industry while Greece, the Netherlands, Portugal and Belgium follow in the next group. Slightly above the overall average are Italy, Hungary, France, Switzerland and Spain, while Norway, Sweden, the Czech Republic and Poland were below the overall average. Finland, Germany, Austria, Denmark and the Slovak Republic scored lowest and provide the least favourable tax and legal environment for private equity and venture capital.