Anti-tax avoidance standard launched by Global Reporting Initiative with investor input

GRI’s new standard takes country-by-country reporting approach

The Global Reporting Initiative, the standards body, has launched a new standard on tax transparency reporting, whose drafting was informed by a large number of ESG investors and pension funds.

GRI’s new standard has taken a country-by-country reporting approach, which aims at breaking down financial information for each jurisdiction in which a company operates to avoid profit shifting. 

The new tax standard, named GRI 207: Tax 2019, joins GRI’s reporting suite which, albeit voluntary, means companies should not cherry pick tax disclosure.

“The basis for a mandatory standard is being built” – Richard Murphy

From January 2021, companies reporting under GRI standards should also report on material tax issues – there is one year to adapt to the new measure, a GRI spokesperson told RI.

Among the technical committee to develop the standard was Alex Cobham, CEO of the Tax Justice Network campaign group.

Quoting research by Australian academics, he said that tax avoidance makes “investors receive no higher return – but suffer greater risks”.

About 40% of the feedback to the consultation, which ran during 2019, came from investors. 

On behalf of the New York City Employees’ Retirement System, Comptroller Scott Stringer stated that the new tax proposal would provide investors with material information while imposing “only modest costs on companies”.

Stringer wrote that tax avoidance strategies “deprive federal, state and local governments of much needed revenues to fund essential infrastructures and services” while posing “a range of other risks to companies and their shareowners”.

“The proposed standard requirement for Country-by-Country reporting will better enable investors to assess and anticipate these risks,” Stringer said. 

Norges Bank Investment Management stated the proposal aligned with its own tax expectations of companies. 

“We emphasised that board should take the lead in setting corporate tax priorities and should disclose their own policy on tax,” NBIM’s Carine Smith Ihenacho and Wilhelm Mohn wrote. 

The Church Commissioners for England suggested that remuneration policies that promote short-term thinking by aggressively reducing tax payments is opposed to good corporate governance and such disclosures should be part of the GRI standard. 

Legal & General Investment Management said: “We support the alignment between the suggested disclosures and the Country-by-Country reporting obligations of multinational groups under the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13 minimum standards.” 

Corporate lobby group EuropeanIssuers, however, expressed concern with the new standard; it advocated instead for an exchange of information between companies and competent authorities only, rather than disclosure of publicly available country-by-country information. 

 EuropeanIssuers stated: “Ever since BEPS Action 13 Report was released, jurisdictions have made great progress in introducing domestic legal frameworks as well as international legal and administrative provisions for the annual filing and exchange of country-by-country reports by multinational enterprises. This type of information is provided to competent authorities but is not to be made publicly available.”

Tax campaigner and academic Richard Murphy who was also among the technical committee of experts who developed the standards. 

He said: “Investors said they want this: the basis for a mandatory standard is being built. Business has to pay or explain now. This standard demands that. So I welcome the GRI standard. It’s another step on the way towards full mandatory public country-by-country reporting.”

Fiona Reynolds, CEO of the Principles for Responsible Investment, welcomed the standard as "an evolution in tax transparency and provides a much-needed and ambitious framework for corporate tax reporting.”

Hermes EOS' Andy Jones, said "we will advocate for the standard with sectors and companies where the issue is most material".