DRY TAX CHARGE FOLLOWING DISTRIBUTION OF IPO PROCEEDS

Some Funds seek insurance for the risk that following the IPO of a portfolio entity, the distribution to investors could trigger a tax charge upon certain of the Fund’s investors.

The potential tax liability could materialise in the event that there was a deemed chargeable gain for the investors despite their not having actually received the sums for their own benefit but rather as a conduit within the fund structure. The General Partner of a Fund would often seek to protect its investors from such a ‘dry tax charge’ on the basis it is seen as inequitable for investors to suffer such a charge.

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