Pensions and Investment Research Consultants (PIRC) has this week launched its Tax Briefing, setting out its expectations for investors and companies which outlines voting recommendations that can be adopted by asset owners and managers wanting to actively engage companies on their tax practices.
The report compares the policies of leading investors with those of the largest asset managers, and finds that all but one are lacking substantive tax policies.
These expectations and voting recommendations underscore PIRC’s understanding of tax as a material governance and sustainability issue, it stated.
“It comes after our success in issuing a shareholder resolution on tax transparency at Amazon, and forms part of our wider collaborative investor initiative on responsible tax in collaboration with the Centre for Corporate Tax Accountability and Research (CICTAR),” the organisation stated.
“Investors cannot afford to ignore the issue of aggressive tax avoidance,” it added.
Last year saw historic reforms to global tax regulation, most prominently the OECD agreement by 137 countries to implement reforms to stop the race to the bottom on corporate tax. Facing large pandemic-induced deficits, governments and tax authorities are stepping up their investigations into tax avoidance.
PIRC’s expectations for companies and shareholders include:
- compliance with the spirit and letter of the law, and committing to paying taxes where profits are earned;
- aligning company tax policy with the business and sustainability strategy;
- board responsibility for a company’s tax strategy and governance approach;
- publication of a tax policy, a tax governance framework, and country-by-country reporting, in line with the Global Reporting Initiative (GRI) Tax Standard;
- shareholders voting against members of the audit committee where there is no evidence of corporate tax management;
- voting against management proposals to reincorporate in another jurisdiction motivated primarily by aggressive tax planning;
- voting for proposals seeking greater disclosure.
Katie Hepworth, PIRC’s responsible tax lead, said: “Companies should comply with both the spirit and the letter of the law to uphold the integrity of the national and global tax systems.
“Companies do not operate in a vacuum, and they must contribute to the societies in which they operate in.”
She noted that with economic hardship and larger government deficits, companies will come under increasing pressure to disclose and justify their tax policies.
“They must align their tax approach to long-term business and sustainability strategies. Shareholders have a vital role in holding these companies to account, in order to ensure that they contribute their fair share and realise the value of their holdings.”