April 14, 2014 / 5:15 PM / in 4 years

Brazil group seeks lower taxes for venture capital funds

RIO DE JANEIRO, April 14 (Reuters) - The group representing Brazil’s buyout industry is in talks with the government and lawmakers to implement a lower tax structure on venture capital funds to help lure more money into the highly-risky segment, senior executives said on Monday.

Associação Brasileira de Private Equity & Venture Capital is working closely with finance ministry officials, senators and lower house deputies in the creation and implementation of a tax framework that stimulates the venture capital segment, said Fernando Borges, who on Monday was elected as president of the group, known as ABVCAP.

Borges, currently a managing director and co-head of private equity at the Carlyle Group LP, said the plan would allow the birth of many enterprises in a country where conditions for entrepreneurship may be tougher than in other major economies. Borges’ term at ABVCAP ends in April 2016.

Under the plan, venture and seed capital funds - investment vehicles that buy stakes in nascent businesses and help transform the latter into companies - would see their tax burden decline the longer they keep their investment in the enterprise. The move, along with a change in the way funds are held accountable for a potential bankruptcy of an investment, could help so-called “angel investors,” as the funds are usually known, deal better with high mortality rates in incipient enterprises.

The move underscores the difficulties of investing in new ventures in Brazil, the world’s seventh-largest economy and a country struggling with high bureaucracy, a regressive tax code, growing state intervention across the board and an unhealthy climate for business. The country ranked 116 in the World Bank’s Doing Business list of 189 nations, noting how difficult is to create and keep a business open there.

Speaking in Rio de Janeiro, where ABVCAP is hosting its annual summit, Borges noted that “a more benign fiscal and tax structure for these vehicles would help ensure their survival and, why not, their blossoming as a stronger source of money for new enterprises in Brazil.”

He declined to elaborate on other terms of ABVCAP’s proposal. Securities industry watchdog CVM and other market participants will at some point be consulted on the feasibility of the plan, executives at ABVCAP said.

“We feel there is a lot of receptivity in Brasilia over our demands and suggestions,” said Clovis Meurer, whom Borges replaced as president of ABVCAP. (Reporting by Guillermo Parra-Bernal; Editing by Bernard Orr)

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