05/01/23

INTERNATIONAL TAX: Shareholder engagement over tax transparency grows.

As published on irmagazine.com, Thursday 5 January, 2023.

Shareholders at large-cap companies Cisco and Microsoft have issued their support over more tax transparency, according to Pensions & Investment Research Consultants (PIRC).

Votes by 27 percent of shareholders at Cisco recently favored the PIRC tax transparency shareholder resolution in conjunction with the Centre for International Corporate Tax Accountability and Research (CICTAR).

A similar move was made by 27 percent of shareholders at Microsoft on December 7 over investor engagement on tax transparency, while a further 23 percent of shareholders supported the proposal a week later, PIRC says these results require a response from both boards.

Shareholder engagement over tax transparency has grown over the past six months, from 21 percent of independent shareholders who voted in favor at Amazon in May 2022 to now 27 percent at Microsoft.

PIRC explains how investor support for tax transparency has begun to spread across the globe, starting in Australia, which moved to mandate public country-by-country reporting (CbCR), and continuing on to the OECD minimum corporation tax agreement and the SEC’s call to support CbCR in the US.

The Amazon shareholder resolution on tax transparency was the first proposal to be successfully upheld by the SEC. At the time, the vote did not have the support of management.

‘These votes send a clear signal that investors expect to be provided with meaningful data on an issue of clear financial materiality,’ says Tom Powdrill, head of stewardship at PIRC.

‘Tax transparency is becoming an increasing demand of governments, but shareholders are increasingly demanding that the companies in which they are investing can demonstrate that their business models do not rely on bending the rules in a way that may not be possible in the future.

‘PIRC will continue to collaborate with CICTAR and responsible investors worldwide to press companies on the need to align themselves with the GRI Tax Standard. We have consulted with governments and shared our experience in the hope of bringing about a globally standardized tax framework, with the transparency shareholders need and deserve.’

Jason Ward, principal analyst at CICTAR, says the research has found evidence of ‘major profit shifting’ within the growing global operations of Microsoft, Amazon and many other multinationals, with a ‘mismatch’ between high profit margins at the global level and low profit margins at the national level.

There are similar concerns at Cisco, Ward warns: ‘CbCR would allow shareholders and other stakeholders to understand whether these discrepancies in profit margins are due to legitimate reasons, or not.’