PRI and investors put together guidance on corporate tax responsibility

‘Why and how to engage with companies’

The Principles for Responsible Investment (PRI) and a small group of leading institutional investors have put together guidance for investors on how to approach corporate tax responsibility in a sign the issue is now firmly on the agenda for investors.

It’s intended to assist investors to conduct company engagement on the topic to promote “corporate tax responsibility: a more responsible corporate approach to tax practices, including better disclosure and transparency, good governance and appropriate management of tax-related risks”.

It’s hoped it will allow investors to support companies in achieving the “right balance between controlling the tax bill and mitigating related risk”.

“The PRI has been getting numerous enquiries from signatories asking what the investment community should be doing about encouraging corporate tax responsibility,” said PRI Managing Director Fiona Reynolds – adding that more than 100 investors referred to it their most recent PRI reporting.

“Investors are concerned about how close aggressive tax planning comes to crossing the grey line between avoidance and evasion, and about the increasing frequency with which companies are being challenged by regulators and other stakeholders,” she said.

The PRI, reacting to requests from signatories base, convened a group of 11 global investors, including heavyweights such as French state fund ERAFP and UK asset management giant Legal & General Investment Management (see list below), to explore the issue.

Over the course of 2015, the taskforce held meetings with various stakeholders to inform their thinking and worked closely with the PRI to produce guidance on how to engage with investee companies on this topic.The guidance aims to facilitate engagement between investors and their portfolio companies by providing investors with a tool to identify and analyse tax-related risks, and ask thoughtful, challenging questions.

It’s believed to be the first formal guidance for investors on the issue.

Speaking at a launch event in London yesterday, Margaret Hodge, the UK MP who did much to bring the issue to the fore as chair of the Parliamentary Public Accounts Committee, said in her five years looking at the area she never once spoke with investors.

“There’s a moral dimension and a legal dimension to who pays tax,” Hodge said. She said the tax issue “feeds short-termism and feeds the race to the bottom”. She called for the UK’s tax authorities (HM Revenue & Customs, HMRC) to litigate much more and for tougher action on tax advisers.

It comes in the context of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative. Raffaele Russo, Head of the BEPS Project at the OECD, told the event by video link: “If multinationals have been aggressive in the past [on tax policy], their effective tax policy will go up.”

Investors:
Alliance Trust
Arisaig Partners
Bâtirente
Domini Social Investments
ERAFP
Legal & General Investment Management
MFS Investment Management
NEI Investments
Rathbone Brothers
RobecoSAM
Triodos Investment Management