Strategizing Multinational Tax Risks

Tax transparency, Asset Manager perspective

Click to access PIRC_TAX-BRIEF_FINAL.pdf

The cite above is a briefing from Pensions & Investment Research Consultants Limited (PIRC) summarizing their review of how asset managers engage their portfolio on tax matters. Interestingly, PIRC expects that US asset managers will need to review their tax approach and incorporate such provisions in their stewardship and voting guidelines.

Excerpts of the review:

• Where remuneration and performance are based on tax sensitive indicators, the concern is that companies will use riskier tax strategies for minimization; and they would vote NO for these remuneration related resolutions.
• Vote NO if non-audit fees > 50% of audit fees for the current year, or prior three years.
• Vote NO for proposals to reincorporate in another jurisdiction that appears to be motivated by aggressive tax planning
• Vote YES for disclosures of a company’s tax policy, referencing GRI 207-1 and GRI 207-2 (refer to prior post for GRI details).
• Vote NO to audit committee members who evidence no corporate tax management focus.
• Vote YES for public Country-by-Country Reporting (CbCR).
• Vote NO to financial statements do not publish CbCR.

Notwithstanding the above excerpts are sourced from an asset manager perspective, these trends are critical to monitor and align tax expectations/risks with the Audit Committee/Board of Directors. Imperative to these discussions is the presence of the tax executive in regular audit committees to discuss relevant tax risks, opportunities and provide transparency into the global governance process.

Tax transparency: GRI 207

Tax transparency is experiencing a dramatic upsurge in interest by various stakeholders. The year 2024 is looking to be exciting, with OECD’s Pillar 1 & 2 proposals and EU’s CbC directive to be possibly effective. Most recently, shareholders of Amazon put forth a proposal inviting additional tax transparency into its global tax practices, via implementing (some or all) parts of GRI 207.

Click to access gri-207-tax-standard-2019-factsheet.pdf

The above link provides a primer/reference into the workings of this transparency initiative, which is divided into 4 parts. The Standard was developed by an expert multi-stakeholder technical committee under the oversight of the Global Sustainability Standards Board (GSSB) with input from over 250 stakeholders from multiple constituencies.

207-1: This information provides a publicly available tax strategy, outlining responsible personnel, compliance approach and integration into business operations/strategies.

207-2: The second part addresses tax compliance and risk roles/mitigation and (again) how tax is placed within the Company.

207-3: Part 3 is focused on engagement of stakeholders, including public tax policy advocacy, tax authority interaction and feedback processes.

207-4: This final part includes Country-by-County (CbC) reporting, for all jurisdictions.

Notwithstanding the link of some/all information as a public document, I highly recommend all multinationals have the first 3 parts formalized for review./approval by the Audit Committee/Board of Directors.

This document represents a win-win proposal and may also serve as an impetus to formalize Best Practices such responding to governmental consultations, integration with OECD principles, interactions with auditors, delineating the difference in tax planning vs. tax evasion, etc.