A former senior executive east Davidson Kempner Capital Management has alleged that HM Revenue & Customs challenged arrangements used by the hedge fund to reduce partners’ tax liabilities, according to a report by Bloomberg.
Michael Herzog, who helped build Davidson Kempner’s European business before leaving the firm last year, made the allegations in an employment lawsuit. He claims HMRC disputed a so-called “disguised salary” arrangement that enabled the firm to reduce National Insurance liabilities, as well as a separate structure that allegedly reduced the tax rate on partners’ profits to 28% from 51%.
“HMRC ultimately disputed the schemes and continues to investigate the partners’ tax income for the 2015/16 tax year,” Herzog alleged in the legal proceedings.
Davidson Kempner has rejected the claims, saying the allegations were false and that the firm itself was not the subject of an HMRC investigation concerning the matters described in Herzog’s filings.
The firm said the issue related to wider industry enquiries into the tax treatment of a particular type of remuneration arrangement used by multiple asset managers.
The allegations form part of a broader employment dispute between Herzog and the New York-based hedge fund. The filings became public through related proceedings in the US after a request to unseal certain documents.
Herzog was among Davidson Kempner’s most senior executives and played a key role in developing its European operations. According to his claim, the firm told him in February that HMRC had contacted it about the investigation and that he faced a £9.2m tax bill.
He also alleges that Davidson Kempner subsequently told HMRC it was no longer representing him in connection with the tax investigation. Herzog described that decision as an attempt to make matters more difficult for him and alleged that Chief Investment Officer Tony Yoseloff was behind it.
Davidson Kempner’s lawyers have rejected Herzog’s claims as lacking merit. The firm has previously characterised his allegations as a “classic case of sour grapes”, while describing Yoseloff as an individual of the highest integrity.
