Red tape and tax ties up investment for small firms

Small companies and startups in Europe are missing out on valuable cross-border venture capital investment because of red-tape and tax mismatches.

The European Commission wants investors and businesses who faced venture capital tax issues to deliver the evidence as part of a public consultation on changing the rules.

The commission blames double taxation problems coupled with legal and administrative uncertainty when investing within the European Union for hindering the venture capital market and cutting off funds to businesses.

Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit, said: “Venture capital is an essential source of financing for companies, in particular innovative start-up businesses facing the costs of developing know-how.

“These businesses are the backbone of the EU’s economy and help to generate economic growth and new jobs. It is therefore the collective responsibility of the commission and member states to find solutions to tax obstacles that hinder cross-border venture capital within the EU.”

Venture capital is becoming more important to businesses as traditional bank finance dries up due to regulatory changes that make lending more difficult to high-risk startups.

The consultation is aimed at uncovering examples of direct tax problems to assess any extra costs to investors and firms in the EU.

The move is part of ongoing efforts to improve access to finance for small businesses which includes an examination of potential tax obstacles that hinder cross-border venture capital investment with a view to presenting solutions in 2013 that would eliminate any obstacles while preventing tax avoidance and evasion.

Although the inquiry has uncovered tax issues for venture capital investors, but failed to provide evidence of how this may be affecting the market.

The consultation is open until November 5, 2012.

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