Analysis: Global corporate tax crackdown gives ethical investors a boost


  • The G7 could agree to a minimum corporate tax rate of 15%
  • KLP, APG among investors step up pressure on companies
  • Retired customers are starting to push back – RLAM

LONDON, June 2 (Reuters) – (This article from June 2 corrects the name of Tribe Impact Capital in the last paragraph)

A global tax crackdown on multinationals has the backing of some of the world’s biggest investors who say the use of low-tax jurisdictions goes against the principles they are committed to.

After years of negotiations over complex corporate deals, G7 finance ministers meeting in Britain on Friday are expected to declare their support for a global deal to address billions of dollars in lost tax revenue. L2N2NI198

This push is supported by some large, often state-run investors looking at tax bills as well as profits.

“It’s not about paying more taxes, it’s about paying the right amount of tax. We don’t want companies to engage in practices through transactions and legal structures that contribute to tax evasion, “Kiran Aziz, sustainability analyst at KLP in Norway, which manages $ 80 billion in pension assets, said.

A study 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 university study revealed that the coffers of the world state were losing $ 200 billion a year. .

The objective of the G7 is to set rules on the taxation of cross-border digital activities as well as a minimum tax rate above the level paid if companies channel their profits through a low-tax country like Ireland with its levy on companies by 12.5%.

The United States cited a rate of 15%, down from its original proposal of 21%. L1N2M71D3L8N2MM7I6

Norway’s $ 1.3 trillion sovereign wealth fund, which has set the tone on many environmental, social and corporate governance (ESG) issues, recently launched a public salvo against what its CEO called “planning aggressive tax “and lack of tax transparency by selling stakes in seven companies, which she did not name.

Many funds polled by Reuters said they were stepping up talks with the companies and, if necessary, would drop their shares.

KLP surveyed around 100 companies, including giants from Silicon Valley, joining other Nordic investors.

“We believe that taxes should be paid where real economic value is generated,” Aziz said of the “profit shifting” whereby companies recognize income from sources such as royalties, software or patents. , not where they were earned, but where the tax rates are lower. .

While KLP currently sees engagement as more effective than abandoning investments outright, some have already gone this far.

Peter Rutter, head of shares at the £ 150bn ($ 213bn) Royal London Asset Management said he sold or failed to buy shares in certain companies on the basis of tax arrangements – often at the demand of its retired clients.

“Companies doing the right thing through taxation is an issue we are getting more and more from,” said Rutter.

“KNOW THE RISK”

Taxation has generally played a secondary role in addressing issues such as climate, pollution and labor rights for investors, while most ESG rating providers do not assess a company’s tax planning. when calculating scores.

Many asset managers benefit from lower tax rates by domiciling funds in countries like 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 chief executive Laura Nishikawa said. .

“We are not saying ‘give in now’ but (urge clients) to be a smart investor. You have to know the risk and that is also a fiduciary duty,” she added.

Many investors are preparing to investigate tax policies further, regardless of when the rules are tightened.

Dutch asset manager APG is hiring staff and considering purchasing specialist data after its main client, pension fund ABP, establishes tax and investment policy, said Alex Williams, senior governance specialist business.

Like KLP, APG asked companies about their tax policies, Williams said. The fund, which manages nearly 600 billion euros, recently succeeded in dissuading the new management of an owned company from using tax havens.

OCEANS SEPARATE?

Much of the investor tax burden emanates from Europe, particularly ESG-driven Scandinavia, with an apparent cultural difference among US-based shareholders.

US retirement funds CalPERS, CalSTRS and Texas TRS all declined to comment, but an official at a large US asset manager said taxation is “not a problem for investors” and should “be steered. by those who ultimately impose the taxes “.

Tech companies have long defended their tax practices. Google, whose European headquarters are in the Irish capital Dublin, says it pays taxes where the law requires it.

Sudhir Roc-Sennet, US-based ESG manager at Vontobel Asset Management, while supporting measures to narrow tax rate differentials, opposes the demonization of companies for using loopholes legally.

“It does not make sense for retirees of the future to reduce their jackpot by asking companies to pay more taxes,” said Roc-Sennet.

“Should companies pay a higher tax rate just because it’s ethical? I don’t think so. As investors, we believe companies should act in the best interests of their shareholders as long as they they remain within the legal framework, “he added.

While this view remains widespread, accountants KPMG and BDO have warned their clients of the risk to reputation and returns if tax rules are tightened.

One thing investors agree on is that only coordinated action will prevent companies from using less tax jurisdictions.

“Without regulation, it will be difficult to get business moving. Turkeys will not vote for Christmas,” said Fred Kooij, chief investment officer at Tribe Impact Capital, an impact investment firm.

($ 1 = 0.7043 pounds)

Additional reporting by Tom Arnold and Ritvik Carvalho in London; Ross Kerber in Boston; Editing by Mark John and Alexander Smith

Our standards: Thomson Reuters Trust Principles.


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