NEW YORK: The giants of private equity are preparing to fight for two little letters.
The US$5 trillion industry is embarking on a campaign to change the way taxes for indebted businesses are tallied.
Leading lobbyists want to tack two letters – DA – back to an earnings formula used to help calculate tax deductions, a change potentially worth billions.
The idea is to account for depreciation and amortisation when determining the tax deductibility of a company’s debt payments.
The maximum amount any company can get in such tax write-offs is calculated as a percentage of earnings.
That’s why using earnings before interest, taxes, depreciation and amortisation, which is typically bigger than earnings before interest, taxes and depreciation, in this process would generate heftier tax deductions.
That means bigger tax savings for heavily indebted companies and increased returns for private equity firms that own them. — Bloomberg