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Oxford study reveals $1tn tax avoidance by private capital firms

The world’s largest private capital firms have sidestepped income taxes on more than $1tn in incentive fees since 2000 by structuring payments to incur lower levies, according to a report by the Financial Times citing new research from Oxford University. 

Ludovic Phalippou, a professor at Oxford’s Saïd Business School, authored the report — “The Trillion Dollar Bonus of Private Capital Fund Managers” — which covers private investment strategy groups including buyout firms, venture capital, infrastructure and distressed debt. 

Phalippou’s findings come as performance fees face renewed calls to address what prominent politicians deem a “loophole.” The tax savings amount to hundreds of billions of dollars at current rates, with fees taxed at long-term capital gains rates—substantially lower than income tax rates. Publicly traded firms often distribute up to half of these fees to shareholders as dividends.  

In an interview with the Financial Times, Phalippou said: “All governments are discussing taxing carried interest. My role is to provide the best estimate of the amount. 

“It shows the upper bound of potential tax collection if countries coordinated to tax that pot. Understanding the magnitude explains why private equity is a major donor to politicians and universities.” 

Phalippou calculated that Blackstone, the world’s largest alternative asset manager, earned $33.6bn in carried interest—the most of any single firm. The firm’s chairman and CEO Stephen Schwarzman and president and COO Jonathan Gray have since become multibillionaires, making them influential political donors to Republican and Democratic lawmakers, respectively. 

Last month, Schwarzman declared his support for Trump’s re-election campaign and plans to fundraise among peers. 

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