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Princeton, along with hundreds of other U.S. colleges and universities such as Columbia, Stanford, Duke, and the University of Pennsylvania, has investments in offshore accounts where its endowment can grow with little or no taxation.

On Sunday, Bermuda-based law firm Appleby leaked the Paradise Papers, confidential documents revealing information regarding these offshore accounts.

“We use offshore vehicles only when necessary to gain access to specific managers,” said Assistant Vice President for Communications Daniel Day in an email.

While endowment earnings are usually tax-exempt, some colleges and universities invest in private equity and hedge funds, which employ borrowing tactics that expose them to tax consequences.

“Tax exemption doesn’t apply to unrelated business taxable income,” wrote Beth Bogan, a senior lecturer in economics at the University, in an email.

In the 1990s, “private equity funds that buy direct ownership in businesses were obtaining high returns and university financial managers wanted to invest in them,” she added.

To avoid taxes, schools can legally invest in so-called “blocker corporations,” offshore corporations that assume the responsibility of paying the taxes — little or none, offshore — in order to “block” the taxable income from schools’ endowments.

Colleges and universities “can treat their returns like dividends which like interest received by a tax exempt entity is not taxed,” Bogan explained.

“We are not motivated by tax avoidance,” Day added.

Some schools have drawn criticism for secretly investing in offshore hedge funds that financially back carbon-emitting industries, despite opposition from students campaigning for fossil fuel divestment.

The University does not disclose information on specific investments, according to Day.

Recently, University officials opposed a provision in the House Republican tax bill that would impose a federal tax on private university endowments with more than $250,000 per student, The Daily Princetonian reported.

“I think large endowments should pay some tax on their investment income,” Bogan said. “Universities benefit from a stable government too.”

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