A global tax crackdown
on multinationals has the backing of some of the world’s biggest investors who
say that using low-tax jurisdictions falls foul of the tenets they have
committed to.
اضافة اعلان
After years of
negotiations over complex arrangements deployed by big companies, G7 finance
ministers meeting in Britain on Friday are expected to declare their support
for a global accord to address billions of dollars in lost tax revenue.
This push is backed by
some large investors, often state-run, who are scrutinizing tax bills as well
as profits.
“It’s not about paying
more tax, it’s about paying the right amount of tax. We want companies to not
engage in practices through transactions and legal structures which contribute
to tax evasion,” Kiran Aziz, sustainability analyst at Norway’s KLP which
manages $80 billion in pension assets, said.
Research by the
charity ActionAid International estimates that taxing Amazon, Apple, Facebook,
Alphabet, and Microsoft “fairly” on their 2020 profits could potentially
generate $32 billion for G20 countries, while a 2018 academic study found
global state coffers lose out on $200 billion a year.
The G7 goal is to set
rules on taxing cross-border digital activities as well as a minimum tax rate
above the level paid if companies channel profits via a low-tax country such as
Ireland with its 12.5 percent corporate levy.
The United States has
mooted a 15 percent rate, down from its original proposal of 21 percent.
Norway’s $1.3 trillion
sovereign wealth fund, which has set the pace on many environmental, social and
corporate governance (ESG) issues, recently fired a public salvo over what its
CEO said was “aggressive tax planning” and lack of transparency on tax by
selling stakes in seven companies, which it did not name.
Many funds interviewed
by Reuters said they are escalating talks with companies and, if necessary,
will dump shares.
KLP has quizzed around
100 companies, including Silicon Valley giants, joining hands with other Nordic
investors.
“We believe taxes
should be paid where actual economic value is generated,” Aziz said of
so-called “profit-shifting” whereby companies book income from sources like
royalties, software or patents, not where it was earned but where tax rates are
lower.
While KLP for now sees
engagement as more effective than dropping investments outright, some have
already gone that far.
Peter Rutter, head of
equities at the $213 billion Royal London Asset Management said he had sold or
skipped buying shares in some companies on the basis of tax arrangements —
often at the behest of his pension clients.
“Corporates doing the
right thing by way of taxation is a question we are increasingly getting,”
Rutter said.
‘Know the risk’
Tax has typically
played second-fiddle to issues such as climate, pollution, and labor rights for
investors, while most ESG ratings providers do not assess a company’s tax
planning while calculating scores.
Many asset managers
enjoy lower tax rates by domiciling funds in countries such as
Ireland and
Luxembourg.
However, MSCI included
tax transparency last November and ESG ratings can be affected if for example
tax bills differ significantly from what a company would have paid in its
country of operation, its managing director Laura Nishikawa said.
“We are not saying
‘divest now’ but (urging clients) to be an informed investor. You need to know
the risk and that’s a fiduciary duty too,” she added.
Many investors are
preparing to investigate tax policies more thoroughly, regardless of when rules
are tightened.
Dutch asset manager
APG is hiring staff and planning to buy specialist data after its main client,
pension fund ABP, established a tax and investment policy, senior corporate
governance specialist Alex Williams said.
Like KLP, APG has been
grilling companies about their tax policies, Williams said. The fund, which
manages almost 600 billion euros, recently managed to dissuade the new
management of one investee firm from using tax havens.
Oceans apart?
Investor pressure over
tax has largely emanated from Europe, particularly ESG-focused Scandinavia,
with an apparent cultural difference among shareholders based in the
United States.
US retirement funds
CalPERS, CalSTRS and Texas TRS all declined to comment, but an official at one
large US asset manager said tax is “not an investor issue” and should “be led
by those who ultimately impose the taxes.”
Tech companies have
long defended their tax practices. Google, whose European headquarters is in
the Irish capital Dublin, says it pays taxes where it is required to do so by
law.
Sudhir Roc-Sennet,
US-based head of ESG at Vontobel Asset Management, while backing moves to close
tax-rate gaps, argues against demonizing companies for legally using loopholes.
“It does not make
sense for pensioners of the future to reduce their savings pot by asking
companies to pay more tax,” Roc-Sennet said.
“Should corporates pay
a higher tax rate just because it’s ethical? I don’t think so. As investors, we
think companies should operate to the best interest of their shareholders as
long as they stay within the legal framework,” he added
While that view
remains widespread, accountants KPMG and BDO have warned clients of the risk to
reputations and returns should tax rules be tightened.
One thing investors do
agree on is that only coordinated action will stop companies using lower tax
jurisdictions.
“In the absence of
regulation it will be difficult to get companies to move. Turkeys are not going
to vote for Christmas,” Fred Kooij, chief investment officer at Tribe Capital,
a boutique impact investment firm, said.
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