PRI eyes collaborative engagement on corporate tax transparency and responsibility

Investor taskforce tackles corporate tax issues

The Principles for Responsible Investment (PRI) expects to initiate a collaborative engagement later this year with its 1,700 signatories on the issue of tax avoidance, building upon the work of an 11-strong taskforce on corporate tax responsibility which is currently conducting research and publishing anticipated recommendations.

A survey conducted last year among PRI signatories showed that tax avoidance is among their top three concerns. The survey revealed signatories wanted more guidance about how to make judgments about tax avoidance risks by companies and how to engage them more effectively.

To that end, the PRI has convened a taskforce (see list below) to lead this work, which so far has produced a document focused on the disclosure of these issues.

Aimed at identifying portfolio risk stemming from aggressive tax avoidance, the taskforce recommends strategies on how to demand detailed board-level disclosures on tax policies, governance and strategy.

According to a PRI spokesperson, increasing pressure comes from a “confluence of factors” ranging from regulatory tightening to the scrutiny of media and civil society, as well as investors who should be aware of these tax risks and engage their portfolio companies.

The current recommendations of the taskforce update the PRI’s 2015 guidance on corporate responsibility, published the year before the Panama Papers revelations put the spotlight on corporate tax affairs.

In the foreword of such guidance Fiona Reynolds, Managing Director of the PRI, stated: “Well-run companies should pay an appropriate level of tax, adhere to the spirit as well as the letter of tax laws, and avoid the reputational, legal and financial risks posed by aggressive tax planning.”

The PRI 2015 guidance outlined the existing zero tolerance status on tax avoidance, mentioning high level tax scandals such as those exposed by the LuxLeaks, and ongoing initiatives to fight avoidance such as that of the OECD’s BEPS project [Base Erosion and Profit Shifting].

It also referred to the work of other organisations such as the World Federation of Exchanges, which had included tax transparency as a material ESG metric for reporting by listing companies.The PRI 2015 guidance also noted that tax authorities would be able to gather better information from multinationals through Country-by-Country Reporting, recommended by the BEPS project.

One of the first proponents of Country-by-Country Reporting is the British academic and tax justice campaigner Richard Murphy, whose new book “Dirty secrets: How tax havens destroy the economy” has just been published.

In the book Murphy addresses the link between increased transparency and better decision-making by investors.

On the issue of Country-by-Country Reporting data, he says it is “absurd” that the OECD is now demanding it be produced for tax authorities of the reporting company’s head office jurisdiction and demanding maximum security to prevent this data from entering the public domain.

He writes: “What is now clear to many investors and other interested parties […] is that, if this data is so valuable to tax authorities, then it is also vital to the other users of a company’s accounts. [This] information should be available in audited form at the same time as the company places its other accounting data on public record.”

The PRI 2015 guidance mentioned the LuxLeaks revelations of secret tax rulings as an example of earning and governance risks.

Such revelations became public thanks to whistleblowers Antoine Deltour and Raphaël Halet, whose case is currently undergoing appeal, the verdict of which is expected on March 15.

PRI Global Investor Taskforce on Corporate Responsibility:

Alliance Trust plc (ATI)
Arisaig Partners (Asia) Pte Ltd
Bâtirente (advised by Æquo SES)
Domini Impact Investments LLC
ERAFP (French public service additional pension scheme)
Legal & General Investment Management
MFS Investment Management
NEI Investments
Rathbone Brothers plc
Triodos Investment Management