A global tax crackdown on multinational corporations is backed by some of the world’s largest investors, who say that using low-tax countries is against the principles to which they are pledged.
After years of negotiating complex corporate deals, G7 finance ministers, meeting in the UK on Friday, are expected to declare their support for a global deal to resolve billions in tax revenues.
This push is backed by some large, often government, investors who review both tax bills and profits.
“It’s not about paying more tax, it’s about the right amount of tax. We want companies not to engage in practices through transactions and legal structures that contribute to tax evasion, ”said Kiran Aziz, sustainability analyst at KLP, Norway, which manages $ 80 billion in pension assets, said.
A study by charity ActionAid International estimates that “fair” taxation of their profits in 2020 from Amazon, Apple, Facebook, Alphabet and Microsoft could potentially raise $ 32 billion for the G20, according to an academic study from the year 2018 found that the global treasury is losing $ 200 billion annually.
The aim of the G7 is to set rules for taxing cross-border digital activities, as well as a minimum tax rate above that paid when companies transfer profits through a low-tax country like Ireland with a corporate tax of 12.5%.
The United States has proposed a rate of 15%, up from its original proposal of 21%. L1N2M71D3L8N2MM7I6
Norway’s $ 1.3 trillion sovereign wealth fund, which has set the pace on many environmental, social and corporate governance (ESG) issues, recently had a public volley of “aggressive tax planning” and lack of tax transparency through sales fired from holdings in seven companies that were not named.
Many funds surveyed by Reuters said they would escalate discussions with companies and sell shares if necessary.
KLP surveyed around 100 companies, including giants from Silicon Valley, who have teamed up with other Nordic investors.
“We believe that taxes should be paid where actual economic value is generated,” said Aziz of what is known as “profit shifting,” where companies post income from sources such as license fees, software or patents, not where they are generated. but where the tax rates are lower.
While KLP sees engagement as more effective for now than dumping investments straight away, some have already gone that far.
Peter Rutter, head of equities at £ 150 billion ($ 213 billion) Royal London Asset Management, said he had sold or skipped stocks of some companies due to tax regulations – often at the behest of his retirees.
“We are increasingly facing companies that do the right thing for tax purposes,” said Rutter.
“KNOW THE RISK”
Taxes have typically played second fiddle to investors on issues such as climate, pollution, and labor rights, while most ESG rating providers do not rate a company’s tax planning when calculating scores.
Many asset managers benefit from lower tax rates by locating funds in countries such as Ireland and Luxembourg.
However, MSCI added tax transparency last November, and ESG ratings can be impacted 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 don’t say ‘sell now’, we ask our customers to be an informed investor. You need to know the risk and that is also a fiduciary duty, ”she added.
Many investors are preparing to examine tax policy more thoroughly, regardless of when the regulations are tightened.
Dutch asset manager APG is hiring and planning to buy specialty data after its main client, pension fund ABP, introduces a tax and investment policy, said senior corporate governance specialist Alex Williams.
Like KLP, APG asked companies about their tax policies, Williams said. The fund, which manages almost 600 billion euros, recently succeeded in dissuading the new management of an investment company from using tax havens.
Most of the tax pressure from investors has come from Europe, particularly Scandinavia with an ESG focus, with an obvious cultural difference between US-based shareholders.
US annuity funds CalPERS, CalSTRS and Texas TRS declined to comment, but an official from a major US wealth manager said taxes were “not an investor issue” and should be “run by those who ultimately collect taxes.”
Tech companies have long defended their tax practices. Google, which has its European headquarters in the Irish capital, Dublin, says it pays taxes where required by law.
Sudhir Roc-Sennet, the US-based head of ESG at Vontobel Asset Management, is in favor of closing tax rate gaps, but is in favor of demonizing companies for the legal use of loopholes.
“It makes no sense for retirees of the future to cut their savings pot by asking companies to pay more taxes,” said Roc-Sennet.
“Should companies pay a higher tax rate just because it’s ethical? I do not think so. As investors, we believe that companies should act in the best interests of their shareholders as long as they comply with the law, ”he added
Although this view is still widespread, auditors KPMG and BDO warn clients of the risk to reputation and returns if tax regulations are tightened.
Investors agree that only coordinated measures can prevent companies from using lower tax jurisdictions.
“Without regulation, it will be difficult to get companies to move. Turkey will not vote for Christmas,” said Fred Kooij, chief investment officer at Tribe Capital, a boutique impact investment firm.
($ 1 = 0.7043 pounds)
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