Kairos Investment Management settles multimillion tax wrangle

Kairos Investment Management, a London-based alternatives specialist, has reached a multimillion euro settlement with the Italian taxman over claims dating back to 2001, it has emerged in the firm’s annual accounts.

The investment manager, which is a subsidiary of Italy’s Kairos Investment Management SpA, reached an agreement worth €11 million with Agenzia delle Entrate in November 2015, the firm confirmed in its accounts for the year ended December 31, filed at Companies House on March 9.

Also in November, Swiss bank Julius Baer announced it would up its ownership stake in Kairos Investment Management SpA from 19.9% to 80%. A spokeswoman for Kairos said there was no link between the settlement and the increase in the stake held by Julius Baer.

Julius Baer declined to comment.

Kairos Investment Management said in its accounts that it had been landed with tax bills spanning the period April 1, 2001 to December 31, 2012, which were “based on the alleged place of management and control being in Italy”. The firm said in its accounts for the previous year that it thought the chances of having to pay out on two sets of tax notices were “remote”, with a third being “possible”, estimating this could cost some €2 million.

In December 2013, Kairos received two tax notices from the tax authority in relation to the periods April 1, 2001 to November 30, 2001 and December 1, 2001 to November 30, 2002. In its 2013 accounts the firm said it had assessed that it had “strong grounds to successfully challenge the validity of the claim” and declined to make provision for any unpaid tax in its accounts. It submitted an appeal to these notices on May 19, 2014.

In August 2014, the firm received further tax notices for each year from 2003 to 2012. In its 2014 accounts, Kairos Investment Management said that the risks associated with the notices from 2001 to 2006 with regards to corporate and regional tax were “remote”, while the risk connected to the period from 2007 to 2012, which entailed regional tax, was “remote”, and again declined to make provision for any unpaid tax. It did, however, say that the risk was considered “possible” for the period 2007 to 2012 in respect to corporate tax. It appealed these notices on February 12, 2015.

However, Kairos Investment Management confirmed that it had opted to settle across all the periods cited by the Italian tax authority – a payment which encompassed higher corporate and regional taxes, plus sanctions and interest.

The firm stated in its accounts: “As a result of agreeing this settlement amount, the case has been closed by the Tax Court of Milan.”

Agenzia delle Entrate said it was not standard practice for it to make comments on specific tax cases.

Alongside the settlement, Kairos Investment Management received an injection of €7.5 million in new share capital from its parent on November 6, 2015, which qualified as Tier 1 capital, a core measure of a firm’s financial strength.

Kairos Investment Management said in its accounts: “No breach of the company’s FCA regulatory capital requirement has arisen as a result of recognising this liability.”

Julius Baer announced on November 16 it had increased its stake in Kairos Investment Management SpA, which manages some €8 billion, as part of its international expansion strategy that had also seen it do deals in Mexico and Brazil. At the time, the firms said this would help “ramp up” Kairos Investment Management SpA’s growth outside Italy. Julius Baer also intends to list part of this stake on the Italian stock exchange this year.

The 2015 accounts also stated that approval had been granted by the UK’s FCA and other regulatory authorities for the company’s controlling party to switch from Kairos Investment Management SpA to Julius Baer Group. Kairos Investment management made a loss of £4.5 million for the year, reversing a profit of £1.7 million for the previous year. Its revenue stood at £11.8 million.

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