MP Pension has said in a new position paper on responsible tax behaviour that shunning all companies and investments linked to dubious tax practices is simply not feasible for it as a pension fund – as doing so would have too big an impact on its risk level and returns.
The Danish pension fund for academics made the assertion in a paper it has published on taking a more responsible approach to tax.
Jens Munch Holst, chief executive officer of the DKK113bn (€15bn) pension fund, said: “Of course, as a responsible pension fund, we cannot live with the companies we invest in not paying the tax they have to. That is why we are raising awareness about it now.”
In the paper, the pension fund said its work on responsible tax practices was being focused on promoting the publication of country-by-country reporting for those companies it invested in, with a particular focus on Danish companies.
The other area of focus for the work was on transparency about its own efforts and tax behaviour, the fund said.
MP Pension outlined concrete principles it pledged to adhere to, including doing a quarterly screening of its portfolio for companies involved in tax avoidance or evasion or aggressive tax planning, and continuing its practice of not lending equities – because it said this put it at risk of being involved in transactions linked to wrongful reimbursement of dividend tax.
However, the paper finished with mention of what MP Pension termed its dilemma.
“If MP Pension decided not to invest in the many companies that are involved in major tax controversies, it would affect both MP’s risk and return to a significant degree,” it said.
“Some of the heavyweight companies in the benchmark have controversies in the field of tax,” it said, giving Google (Alphabet) and Apple as examples.
These major players had ongoing controversies with tax authorities in different countries, MP Pension said, and were weighted very heavily in the investment benchmark, which was used by the fund to ensure a high risk-adjusted return.
The fund also cited Swiss bank UBS, which had been fined by French authorities over tax issues, and prosecuted by Danish tax authorities for involvement in speculation in dividend tax payments, it said.
“Another dilemma lies in the fact that unlisted fund investments today are often conducted through holding companies in countries used by some investors as tax havens, while other investors – such as MP – use these for legitimate reasons,” the pension fund added.
MP said it made sure the funds did not use aggressive tax planning, looking not only at whether a structure was legal, but also at whether it was suitable for an investor such as MP, which had a strong focus on responsibility.
“It is, therefore, difficult at this point for MP to distance itself from problem of aggressive tax planning by exclusions or by choosing not to invest in any funds in ‘tax havens’,” MP Pension concluded.
Many Danish pension funds have been speaking out about responsible tax practices in recent years. Within a country with a high level of state welfare provision, tax income is seen as a particularly important issue.
In 2017, Danish education sector pension fund Pædagogernes Pension (PBU) introduced a universal code of behaviour for pension funds regarding tax practices, which it called for other Danish funds to adopt.
Last summer, four of the county’s largest funds – ATP, Industriens Pension, PensionDanmark and PFA – agreed on a set of common principles on responsible tax behaviour by external managers, expressing the importance of the role pension companies play in Danish society in stamping out such practices.MP