10/04/23

US: Companies pressed to reveal more about the taxes they pay.

As published on ft.com, Monday 10 April, 2023.

Making companies publicly disclose the amount of tax they pay on a country-by-country basis could curb international tax avoidance and cut the risks of damaging disputes with local authorities, according to campaigners who are pressing the issue on US boardrooms.

A coalition of investors and activists is seeking shareholder support for increased tax transparency at the annual meetings of several of the largest US companies in the coming weeks, making it the latest frontier in the battles over environmental, social and governance reporting.

“Investors need to know how close to the line corporate tax strategies are, so they can assess how much risk they are willing to take,” said Ian Gary, executive director of the Financial Accountability and Corporate Transparency Coalition.

The campaigners have been buoyed by legislative moves in Australia and the EU to force more country-level tax disclosures from companies, although some of the largest fund management groups in the US remain opposed to the idea. Such transparency, those critics say, opens companies up to hostile scrutiny that could end up increasing their tax bills around the world, to the detriment of shareholders.

The coalition first focused its efforts on tech companies in 2022, in the wake of controversies over how Big Tech shifted profits to low-tax jurisdictions to keep bills low, and expanded its campaign this year to the oil industry. Oxfam America, a coalition member, has put forward shareholder proposals at ExxonMobil, Chevron and ConocoPhillips to introduce country-by-country tax reporting, saying “tax avoidance is a key driver of inequality”, and “economic challenges have increased government concern about corporate tax avoidance”.

The OECD requires companies to disclose country-by-country payments privately for sharing among tax authorities, but making that information public is controversial.

The world’s largest asset managers have opposed public disclosure, and BlackRock and Vanguard, whose index tracker funds hold big shareholdings in most listed companies, voted against tax transparency proposals at Amazon, Microsoft and Cisco Systems last year.

One large fund manager said that companies that put themselves above the parapet by reporting country-by-country payments risk scrutiny that could damage their reputation.

“There is a first-mover risk to a company that is pushed to initiate disclosures that their peers are not initiating,” the person said. “It’s for government to set tax disclosure policy. We find it difficult to support proposals that have a public policy goal.”

The divisions were on show at an investor advisory panel to the US Securities and Exchange Commission in December. One member suggested disclosures would lead to additional taxes that would harm shareholder returns, but another said that shareholders were already exposed to the risk of tax disputes — just without knowing where they might erupt.

Oil companies Shell and Hess are among a small number that voluntarily disclose tax payments by country. Campaigners say the requirement is not onerous since companies in the extractive industries are already required by the US to disclose at least project-by-project tax payments.

The EU this year began requiring multinationals to disclose tax payments in member countries and in designated tax havens, while the Australian government on Thursday introduced draft legislation that will require full country-by-country reporting.

The highest level of shareholder support for a country-by-country reporting proposal was at Cisco in December, where 27 per cent of shareholders voted in favour.