The Skewed Playing Field between Private Equity and Family Ownership Hemmed in by Intra- and Inter-Country Tax Non-Neutralities

Abstract

This article investigates the ownership and management dynamics of private equity investments and family-controlled holdings in the United Kingdom and Italy, and reveals a tax imbalance in their pursuit of corporate control over publicly listed firms. By employing an interdisciplinary approach and a quantitative case study analysis applied to corporate and tax planning, this article illustrates that whereas UK taxation favours private equity, Italy leans towards controlling families, highlighting its implications for the private equity industry’s competitiveness and family inter generational succession, both domestically and across borders. Hence, with no ex ante preference for a specific form of ownership model (family or private equity), the article sheds light on the impact of tax considerations on corporate control decisions, and therefore advocates for tax neutrality to level the playing field between family and private equity control. Last, the article observes a greater reliance on leverage in private equity corporate governance models compared to controlling families, suggesting that it is not the legal availability of a tax shelter (interest deductions) per se that prompts its use, but rather the controlling investor's profile that weighs on borrowing preferences.