Principles for Responsible Investment
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PRI: New guidance helps investors engage on tax
In a global economic landscape dominated by concerns about economic slowdowns and growing inequality, companies minimising tax payments through aggressive tax planning strategies have become a key focus area for governments, international regulators and civil society.
As such, the PRI convened a group of eleven investors from Europe, Asia and North America to explore the issue of corporate tax planning, leading to the production of Investors’ recommendations on corporate income tax disclosure.
The guidance aims to mitigate the risks of an aggressive corporate approach to tax including earnings risk and governance problems; damage to company reputation and brand value; and macroeconomic and societal distortions.
Companies are encouraged to disclose information related to policy, governance and performance. This information may be provided through multiple channels such as a stand-alone tax policy, the proxy circular, the annual report or sustainability report and/or the company website.
Comprehensive disclosure would:
1. include a tax policy signed by a board-level representative outlining the company's approach to taxation and how this approach is aligned with its business and sustainability strategy;
2. provide evidence of tax governance as part of the risk oversight mandate of the board and management of the tax policy and related risks;
3. give an overview of tax strategies, tax-related risks, intercompany debt balances, material tax incentives, country-by-country activities and current disputes with tax authorities.
To help investors engage on the issue, the guide recommends identifying risks in the portfolio, such as a persistent tax gap or media stories and government enquiries. Investors should then engage in a dialogue with companies in the portfolio.
“Investors’ recommendations on corporate tax disclosure will support better dialogue with companies,” said Valeria Piani, associate director, ESG Engagements.