logo
  • Nonprofit News
  • Management
    • Boards and Governance
    • Communication
      • Framing & Narratives
    • Ethics
    • Financial Management
    • Fund Development
    • Leadership
    • Technology
  • Philanthropy
    • Corporate Social Responsibility
    • Donor-Advised Funds
    • Foundations
    • Impact Investing
    • Research
    • Workplace Giving
  • Policy
    • Education
    • Healthcare
    • Housing
    • Government
    • Taxes
  • Economic Justice
    • Economy Remix
    • Economy Webinars
    • Community Benefits
    • Economic Democracy
    • Environmental Justice
    • Fair Finance
    • Housing Rights
    • Land Justice
    • Poor People’s Rights
    • Tax Fairness
  • Racial Equity
  • Social Movements
    • Community Development
    • Community Organizing
    • Culture Change
    • Education
    • Environment
    • Gender Equality
    • Immigrant Rights
    • Indigenous Rights
    • Labor
    • LGBTQ+
    • Racial Justice
    • Youth Activism
  • About Us
  • Log in
  • CONTENT TYPES
  • Webinars
    • Leading Edge Membership
    • Sponsored Webinars
    • Economic Justice
  • Tiny Spark Podcast
  • Magazine
    • Magazine
    • Leading Edge Membership
Donate
Management

Nonprofit Universities Invest Assets in Offshore Tax Haven Funds—Is This OK?

Steve Dubb
November 21, 2017
Share23
Tweet13
Share5
Email
41 Shares
By VectorOpenStock ([1]) [CC BY-SA 3.0], via Wikimedia Commons

November 18, 2017; Daily Pennsylvanian

As the Daily Pennsylvanian details, the University of Pennsylvania (“Penn”) is among over 100 universities identified by the “Paradise Papers” as having invested endowment assets in overseas tax havens.

For example, in fiscal year 2015, Penn invested $84,463,005 in one such overseas fund called the PAM 1740 Fund, the moniker “1740” being chosen to reflect the year of the university’s founding. Apparently, the PAM 1740 Fund is one of four “1740” funds wholly owned by Penn that are housed in “the Cayman Islands, a British territory with virtually no taxes.”

According to Samuel Brunson, a law professor at Loyola University Chicago who specializes in tax policy, the investment by the PAM 1740 Fund was made into a “blocker corporation.” As reporter Caroline Simon explains:

Blocker corporations are commonly used by wealthy individuals or organizations looking to skirt American taxes. While Penn’s status as a nonprofit exempts it from taxes that it might otherwise pay on its endowment returns, it is still taxed on income from investments made with borrowed money, including money invested in private equity funds and hedge funds.

Oddly, according to the article, the main criticism of this practice is that it “raises questions of how colleges should be handling their money, especially in an era of climbing tuition prices and mounting student debt. Critics argue the purpose of an endowment is to fund research and learning, not to pursue risky private investments that avoid taxes.” Tuition, room, and board at Penn are estimated to cost $68,610 during the 2017–18 school year.

But is risk of a lower financial return what should concern us here? After all, investment theory says that high risk also brings the possibility of high reward. Now, surely there are some years that Penn has had poor returns. But given that Penn earned a 14.3 percent return last year, raising its endowment value to $12.2 billion, at least from a financial perspective, it would seem that Penn’s team is doing better than OK in the “managing endowment dollars” department.

A more reasonable question to ask, however, is whether or not it is consistent with the missions of Penn and over 100 fellow nonprofit universities to invest in funds that facilitate tax evasion.

Berkeley economist Gabriel Zucman last week estimated that tax shifting by corporations using such funds costs the federal government $70 billion each year, an amount that is equivalent to 20 percent of total corporate income tax that is collected and nearly equal to total food stamp expenditures. This does not include money shielded by private individuals. Worldwide, Zucman writes that, “an estimated $8.7 trillion, 11.5 percent of the entire world’s GDP, is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities.”

Regarding the common university practice of investing in funds that are housed in offshore tax havens, Brunson, the law professor, says, “There may be bad things about it—I don’t like the fact that we send a lot of money through tax havens—but that’s the way the tax law is written…It’s not morally good or morally bad.”

But maybe, even if funds that facilitate corporate tax evasion are legal, it actually is morally bad for nonprofit universities to act in ways that deprive the public sector of needed resources to address social problems. It’s really not all that hard to see why nonprofits might want to steer clear of such practices. As Penn president Amy Gutmann has noted, “A university is, first and foremost, a social undertaking to create a social good.” Investing assets in funds that facilitate corporate tax evasion is a dubious means to achieve that end.—Steve Dubb

Share23
Tweet13
Share5
Email
41 Shares

About The Author
Steve Dubb

Steve Dubb is a senior editor at NPQ, where he directs NPQ’s economic justice program, including NPQ’s Economy Remix column. Steve has worked with cooperatives and nonprofits for over two decades, including twelve years at The Democracy Collaborative and three years as executive director of NASCO (North American Students of Cooperation). In his work, Steve has authored, co-authored and edited numerous reports; participated in and facilitated learning cohorts; designed community building strategies; and helped build the field of community wealth building. Steve is the lead author of Building Wealth: The Asset-Based Approach to Solving Social and Economic Problems (Aspen 2005) and coauthor (with Rita Hodges) of The Road Half Traveled: University Engagement at a Crossroads, published by MSU Press in 2012. In 2016, Steve curated and authored Conversations on Community Wealth Building, a collection of interviews of community builders that Steve had conducted over the previous decade.

Related
Cincinnati Christian University Faces Possible Loss of Accreditation
By Marian Conway
August 2, 2019
The Sustainability Expectation for Nonprofits: This Time, at Stanford’s Press
By Marian Conway
May 1, 2019
On Nonprofits, Taxation, and the Public Trust
By Ruth McCambridge
April 29, 2019
Iowa Wesleyan Stakeholders Construct a Temporary Bridge to the Future
By Ruth McCambridge
November 16, 2018
Harvard Prepares to Pay a Hefty Endowment Tax
By Ruth McCambridge
November 15, 2018
Is the Bell Tolling for Iowa Wesleyan Campus? Or Was That the Starting Gun?
By Marian Conway
November 14, 2018
other posts by The Author
Tufts University to Remove Sackler Name from All Campus...
By Steve Dubb
December 6, 2019
Are Florida’s Keys the Canary in the US Climate Mine?
By Steve Dubb
December 6, 2019
Public Catches On to Megadonor Domination over...
By Steve Dubb
December 5, 2019
A Series on Sensemaking Organizations
The Sensemaking Organization: Designing for Complexity
The Sensemaking Mindset: Improvisation over Strategy
Structuring for Sensemaking: The Power of Small Segments
logo
Donate
  • About
  • Contact
  • Newsletters
  • Write for NPQ
  • Advertise
  • Writers
  • Funders
  • Copyright Policy
  • Privacy Policy

Subscribe to View Webinars

We are using cookies to give you the best experience on our website.

 

Non Profit News | Nonprofit Quarterly
Powered by GDPR plugin
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.