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IPE special report May 2018

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Norwegian Government Pension Fund Global: Fund urged to help foster tax transparency

As a small country in charge of a not-so-small sovereign wealth fund, it is hardly surprising that the NOK7.1trn (€762bn) Government Pension Fund Global’s (GPFG) power for good or bad causes some level of anxiety in Norway.

The latest worries have resulted in a calm but potentially far-reaching political move. At the beginning of June, the Storting, Norway’s parliament, passed a proposal from the cross-party finance committee to ask the fund’s manager, Norges Bank Investment Management, to consider drafting an expectation document on the subject of tax for the companies in which the fund invests. “Good financial reporting from corporations could support confidence, transparency and correct taxation,” says Conservative MP Svein Flåtten, second vice-chair of the committee.

Such expectations from the GPFG, being the world’s third-largest institutional investor, could have a huge impact on corporate behaviour, in the wake of the Panama Papers scandal. The sovereign wealth fund has become a focus of strong feelings in Norway about the potentially unethical or criminal activity facilitated by the existence of tax havens and closed jurisdictions. 

In April, protesters gathered outside the Storting, in Oslo, to call on politicians to make the fund drop its investments in tax havens. This public debate found voice in the finance committee’s discussions and resulting report and proposals to parliament, based on the finance ministry’s white paper on the management of the GPFG in 2015.

The concerns are not just around the tax affairs of companies in which the fund invests but also the way it structures its unlisted real estate investments, using holding structures and jurisdictions such as Luxembourg. The current direction of the political debate suggests the fund might eventually have to find an alternative to Luxembourg as a jurisdiction.

Labour MP Torstein Tvedt Solberg, who sits on the finance committee, says his party had been concerned about the twin issues of how the GPFG deals with companies it invests in regarding their tax affairs and the internal structure of the fund itself – even before the Panama Papers scandal hit. The committee’s report to parliament goes even further than the resulting proposals approved by the legislature, he points out. 

In the report, the committee calls on Norges Bank and the finance ministry to consider different ways the fund’s operations could be organised – including in relation to tax – in next year’s report on the GPFG. And Flåtten points out that Norges Bank already stated in a letter to the finance ministry in November 2015 that it was exploring various ways of organising its holding companies for investments in unlisted real estate, including the possibility of Norwegian holding companies.

Tvedt Solberg considers the fund’s use of Luxembourg as a jurisdiction for many of its real estate subsidiaries as legitimising the role of tax havens. “It’s understandable that in the starting phase of property investing, the fund has structured itself in a certain way, but we are having a more in-depth discussion now that it is entering the broader phase of its investment plan,” he says. “There is a need to look at it more closely and bring it into line with Norway’s policies on these issues, such as its promotion of country-to-country transparency of reporting.”

Tvedt Solberg says the concern is a general one that goes beyond Norway. “We’ve also seen it in the discussions with the OECD and the World Bank about the challenge the existence of these tax havens presents for the welfare state,” he says. 

At its first-quarter results news conference, Norges Bank Investment Management (NBIM) deputy chief executive Trond Grande said the central bank’s asset management arm thought it was good there was an increased focus on openness about tax and financial matters because closed jurisdictions and secrecy were of concern for NBIM as an investor, as well as for society at large. But the choice of jurisdictions for the fund’s unlisted real estate investments have nothing to do with secrecy or tax avoidance, he says. “This fund is fully transparent to its government and to its supervisory bodies, so it doesn’t have anything to do with secrecy on our account,” he adds.

While NBIM prides itself on the fund’s transparency, the latest parliamentary moves could see the GPFG using its considerable financial clout to encourage others in the same direction

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