Tax treatment for private equity firms is coming under increased scrutiny following comments from US pension fund chief Joe Dear, and a review by the German and Swedish governments. 

“General partners should recognise that tax treatment of their income has become indefensible,” said Dear, chief investment officer of pension fund Calpers, at a board meeting on Monday, referring to the 15 per cent rate in the US. 

US president Barack Obama has suggested implementing a minimum 30 per cent tax rate to ensure that executives are not taxed less than secretaries, repeating calls by famed investor Warren Buffett for a fairer tax treatment. 

In Sweden, politicians have been critical of private equity and are investigating whether profits should be taxed as income rather than capital gains. The tax authority wants private equity fund managers to retrospectively pay a 58 per cent rate of income tax, as well as an additional 40 per cent tax on past profits.

The tax spat reveals how much more Swedish executives would pay compared with US investors, if any reforms were to go through. Should a US general partner be charged income tax on carried interest, his taxable reduction would rise from 15 to 35 per cent. In Sweden, the same investor would face a 58 per cent tax rate as well as social charges, effectively paying 70 per cent or more in taxes. 

Meanwhile, in Germany, regional governments are looking at removing a tax loophole that allows only 60 per cent of private equity managers' carried interest to be taxed.