{"id":7251,"date":"2022-07-22T09:21:48","date_gmt":"2022-07-22T08:21:48","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=7251"},"modified":"2022-09-27T16:42:51","modified_gmt":"2022-09-27T15:42:51","slug":"sunak-funds","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2022\/07\/22\/sunak-funds\/","title":{"rendered":"The Channel 4 News report on Sunak&#8217;s fund management"},"content":{"rendered":"\n<p>Last night, Channel 4 News reported that Sunak had received payments from a tax haven. My view: Sunak did nothing wrong, and the way Channel 4 reported this was unfair and misled viewers.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe title=\"Rishi Sunak: Inside the Tory leadership candidate&#039;s fortune\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/9V0mZMabo6k?start=16&#038;feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<p> The central allegation is that Sunak, when in the US, was a partner in a hedge fund established in the Caymans, and the partners were paid with a share of the tax haven funds they managed.<\/p>\n\n\n\n<p>This is true. But it omitted three key facts, and that made it misleading.<\/p>\n\n\n\n<p>First, almost all hedge funds are based in tax havens. Why? Because if you&#8217;re based in country A, making the tax and regulatory rules work for investors from countries A thru Z is really hard. Tax havens make it much easier. Channel 4 fail to mention how standard it is for a hedge fund to be offshore. They imply it&#8217;s suspicious<sup class=\"modern-footnotes-footnote \" data-mfn=\"1\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_7251\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_7251-1\">1<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_7251-1\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"1\">More background &#8211; almost no funds pay tax. Why? Because if you buy shares in ten companies you pay tax on your income\/gains from the companies. If you buy a fund that invests in the same ten companies then the tax result should be the same. If instead there is another level of tax, in the fund, then you wouldn&#8217;t invest through a fund. Collective investment management is a *good thing* for a bunch of reasons. So policymakers generally accept that funds should not be taxed. For onshore funds (e.g. unit trusts) it&#8217;s achieved by specific exemptions. For offshore funds, it&#8217;s achieved by rules that delineate &#8220;good&#8221; funds that don&#8217;t avoid tax, and &#8220;bad&#8221; funds that do, and imposing punitive taxes on them (the UK offshore fund rules, the US PFIC rules, and other equivalents elsewhere).<br \/><br \/>\n\n\n\nSo for a hedge fund to pay no tax is the correct policy outcome, whether that&#8217;s achieved by an onshore company within a specific exemption, or a tax haven company that falls within specific rules that permit it.<br \/><br \/>\n\n\n\nThere are currently a few initiatives to enable funds to come onshore; that&#8217;s a good thing for a large number of reasons, and I&#8217;ll talk more about that another time.<\/span>.<\/p>\n\n\n\n<p>Second, they also present as an exciting discovery that Sunak, as a partner in the hedge fund, was entitled to a share of the fund returns. But that&#8217;s how hedge funds work &#8211; managers&#8217; interests are &#8220;aligned&#8221; with investors by giving managers a share of the fund returns.<\/p>\n\n\n\n<p>Third, they suggest there&#8217;s some mystery and potentially some tax dodginess here &#8211; &#8220;Did Mr Sunak earn bonuses offshore in the Cayman Islands&#8221;. But at the time, Sunak was living in the US and had a green card. So he was subject to US tax on his income, whether it came from the US, the Cayman Islands, or the moon. (They later give Sunak a quote saying this, but it&#8217;s not just his view &#8211; it&#8217;s intrinsic to the US tax system.<\/p>\n\n\n\n<p>Then they say &#8220;There&#8217;s no suggestion Mr Sunak did anything illegal&#8221;? No &#8211; there&#8217;s no suggestion of anything remotely out-of-the-ordinary. And what triggers me is that the media use this same caveat when reporting on the most egregious of tax scams.<\/p>\n\n\n\n<p>Connoisseurs of the genre will spot the absence of any tax experts in the report. Either:<\/p>\n\n\n\n<ol><li>Channel 4 didn&#8217;t speak to any. In which case WTF?<\/li><li>Channel 4 did &#8211; the experts said there was nothing to see here, and Channel 4 ignored them.<\/li><\/ol>\n\n\n\n<p>There are lots of good reasons to criticise the fund industry. And Sunak is obviously very privileged. If the focus of the report was on these issues then I&#8217;d have no argument with it. <\/p>\n\n\n\n<p>Is it possible that there was tax avoidance going on? In principle, sure. Here&#8217;s some questions Channel 4 could have asked:<\/p>\n\n\n\n<ul><li>Was this &#8220;carried interest&#8221;, taxed at the lower capital gains rate in the US and UK rather than the full income rate? (For a hedge fund it shouldn&#8217;t be)<\/li><li>Did Sunak continue to be entitled to payments from funds he used to manage when he was Chancellor?<\/li><li>If so, were these fully declared? And was he fully taxed on them as income (45%), at the lower capital gains rate (20%), or something else?<\/li><li>What did the funds do? How were they structured? Was there avoidance going on &#8220;lower down&#8221; in the structure?<\/li><\/ul>\n\n\n\n<p>What we got instead was insinuation-heavy, context-light reporting, which damages the public understanding of tax, and undermines our ability to identify people and politicians who really have been engaged in tax avoidance. Mentioning no <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/zahawi\" target=\"_blank\">names<\/a>.<\/p>\n\n\n\n<ul class=\"modern-footnotes-list \"><li><span>1<\/span><div>More background &#8211; almost no funds pay tax. Why? Because if you buy shares in ten companies you pay tax on your income\/gains from the companies. If you buy a fund that invests in the same ten companies then the tax result should be the same. If instead there is another level of tax, in the fund, then you wouldn&#8217;t invest through a fund. Collective investment management is a *good thing* for a bunch of reasons. So policymakers generally accept that funds should not be taxed. For onshore funds (e.g. unit trusts) it&#8217;s achieved by specific exemptions. For offshore funds, it&#8217;s achieved by rules that delineate &#8220;good&#8221; funds that don&#8217;t avoid tax, and &#8220;bad&#8221; funds that do, and imposing punitive taxes on them (the UK offshore fund rules, the US PFIC rules, and other equivalents elsewhere).<br \/><br \/>\n\n\n\nSo for a hedge fund to pay no tax is the correct policy outcome, whether that&#8217;s achieved by an onshore company within a specific exemption, or a tax haven company that falls within specific rules that permit it.<br \/><br \/>\n\n\n\nThere are currently a few initiatives to enable funds to come onshore; that&#8217;s a good thing for a large number of reasons, and I&#8217;ll talk more about that another time.<\/div><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Last night, Channel 4 News reported that Sunak had received payments from a tax haven.<\/p>\n<p>My view: Sunak did nothing wrong, and the way Channel 4 reported this was unfair and misled viewers.<\/p>\n","protected":false},"author":1,"featured_media":7253,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[141],"tags":[127,106,124],"jetpack_featured_media_url":"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/07\/Screenshot-2022-07-22-at-08.38.45.png","_links":{"self":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/7251"}],"collection":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/comments?post=7251"}],"version-history":[{"count":8,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/7251\/revisions"}],"predecessor-version":[{"id":7319,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/7251\/revisions\/7319"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media\/7253"}],"wp:attachment":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media?parent=7251"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/categories?post=7251"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/tags?post=7251"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}