Venture capital and social entrepreneurship
Agreement struck at last on European fund label
By Ophélie Spanneut | Friday 29 June 2012
After stumbling for days on the question of tax havens, an agreement was finally struck, on 28 June, on the regulations establishing European venture capital and social entrepreneurship funds.
To make venture capital and social entrepreneurship investments more attractive, the European Commission proposes a less stringent regime than the directive on alternative investment fund managers. The Commission’s two draft regulations, presented in December 2011, create a ‘European venture capital fund’ and a ‘European social entrepreneurship fund’ passport. The idea is to make it easier for investors to identify these funds. The label will also serve as a guarantee of the fund’s seriousness, since funds awarded the label will have to meet a number of quality criteria.
STALEMATE ON TAX HAVENS
The three-way negotiations advanced quickly before getting stuck on the question of tax havens, which had not seemed controversial at the start, however. In the European Parliament’s Committee on Economic Affairs (ECON), on 31 May, MEPs voted to exclude tax havens, in other words, neither funds eligible for the European label nor companies eligible for investments may be based in tax havens. The idea is to reduce the risk of tax evasion. The three institutions all agreed on the principle but working out the practical arrangements proved much harder.
With things at a standstill and determined to advance whatever the cost, the Danish Presidency steered through the 26 June General Affairs Council a general approach containing all the terms of the agreement apart from those on tax havens. According to an informed source, the Council took a very dim view of Parliament’s effort to “force through” a taxation issue, which is subject to unanimity. The 27 found that this subject had nothing to do with the matter at hand and did not accept MEPs’ insistence. The discussions then resumed on this point and culminated with the 28 June agreement.
While the Council referred to the lists drawn up by the OECD and the Financial Action Task Force (FATF, an intergovernmental task force on money laundering), MEPs considered that these lists were inadequate because they define only criteria, not the countries targeted. The agreement therefore establishes that venture capital funds may be registered in countries outside the EU provided these countries do not offer extremely preferential tax treatment. A declaration is also attached to the regulation committing the Commission to “explore the option of proposing a European definition of tax havens”.
This question applies only to venture capital funds but, since the two are linked, the negotiations were held in parallel and the regulation on social entrepreneurship funds was also held up by the problem.
Who made the solution possible? According to different sources, the Council applauds the negotiating capacities of the Danish Presidency, which succeeded in convincing Parliament to be more flexible, while the EP applauds the Commission for its constructive proposal.
On the obligation for fund managers to name a depositary, the rapporteurs consider that they obtained satisfaction on the three conditions they had set. First, a review clause offers the possibility to revise the text after four years to impose the appointment of a depositary if abuse is observed and if justified by application of the legislation. Second, audit obligations were strengthened. Third, the revocation clause, which allows national authorities to withdraw the label in case of non-compliance with conditions, is also strengthened.
This political agreement still has to be officially adopted by the Council and Parliament in plenary. It marks the adoption of two new Single Market Act initiatives. Commissioner Michel Barnier (internal market) welcomed the agreement, which “shows the extent to which our work is focused on adopting concrete measures to support growth in Europe”.