Responsible Tax Matters

At KPMG Acor Tax, we have been working with our colleagues across the Nordic region and put together a report about the state of play in tax transparency, expectations for the future and insights for companies wishing to improve the transparency of their tax affairs. The report was put together by comparing the disclosures of 111 listed companies in Denmark, Finland, Iceland, Norway and Sweden with the GRI 207: Tax 2019 sustainability reporting standard. Despite a comparatively low rate of formal adoption of GRI in Denmark, we are seeing many companies looking to the GRI 207 standard when considering what and how to disclose. An interesting result of the analysis is that Danish companies score very high compared to their Nordic counterparts in describing their approach to tax despite a much higher rate of companies formally adopting GRI standards in their sustainability reporting in Finland, Norway and Sweden. We see this result as partially driven by the focus on tax transparency from Danish institutional investors and a serious effort in the tax transparency arena by many Danish multinationals in recent years. Other key outcomes in the report are:

• More than half of the 111 assessed companies had a tax policy publicly available at the time the report was published.
• Only one company out of the 111 we assessed reported on all the GRI 207-4 country-by-country disclosure requirements.
• While GRI 207 compliance was low, 55% of the 111 companies formally claimed to report in accordance with the GRI standard with respect to their sustainability reporting, including 80% of companies in Finland, 70% in Sweden, and 60% in Norway.

Read the report here.

In May, a Tax Governance Code was introduced in the Netherlands by VNO-NCW, the country’s main employers’ representative body. At launch, more than 40 companies had already signed up committing to, amongst other things:

• not making use of tax havens without a commercial reason;
• publishing a tax policy or strategy, where tax is seen as an important contribution to society and necessary to create welfare, and not as a cost factor only;
• transparently reporting their total taxes incurred and collected, as well as their income tax payments and material incentives on a country-by-country basis.

Amongst the 40+ companies committing to this Code are some of the largest listed and non-listed Dutch companies: Shell, Philips, Heineken, Unilever, ING, KLM. More are expected to sign up.

This Governance Code goes further than any other international initiative or EU regulation. Unlike the Danish Tax Code of Conduct introduced by Danish Institutional investors, the Dutch Code is a set of principles and commitments that companies can sign up to (based on the “comply or explain” principle) following in the footsteps of the Australian Tax Transparency Code. However, like the B-Team Responsible Tax Principles, the Dutch Tax Governance sets both behavioural and reporting expectations.

In the wake of the EU’s agreement for public Country-by-Country Reporting (CbCR), the European Business Tax Forum (EBTF) have released a standalone report looking at tax transparency and public country-by-country reporting at the largest European headquartered companies in addition to their annual study of Total Tax Contribution reporting. The report conveys key messages and raises questions such as:

• The report stresses that CbCR only covers Corporate Income Tax, which often is only a small share of the total tax paid and contributed by companies, and which without context can be misleading.
• The report thus questions whether the EU Directive on public CbCR can achieve its objective of “promot[ing] a better-informed public debate regarding, in particular, the level of tax compliance on the real economy (…) and thus contribut[ing] to regaining the trust of citizens of the Union in the fairness of national tax systems”. This concern is shared by Reijo Salo, VP Corporate Tax at Fortum, who earlier this year shared his views on the matter in a LinkedIn post.
• With BEPS 2.0 and Public CbCR coming up, the compliance requirements and complexity imposed on companies are increasing. The report notes that diverging methodologies across the upcoming rules suffer from a lack of a pragmatic approach.
• All these issues underscore the need for companies to accompany their tax disclosures with an appropriate narrative.

Økonomisk Ugebrev, a Danish business journal, have once again published their Tax Governance Rating (paywall). This year the metrics have been expanded and the number of companies included in the rating increased.  The following results are interesting:

• Big pickup of some measure of country-by-country data
• In line with our findings in our own tax transparency report, a very large number of companies in all categories have published a tax policy – certainly due in part to the recommendations for good corporate governance requiring listed companies to have a public tax policy as of 2022 (or explain why they don’t).

As a testament to the difference in attitudes to tax transparency in the US, the shareholder proposal was defeated with a big margin (21% voted in favour) at Amazon’s AGM. Nevertheless, the debate leading up to the AGM showed that a number of stakeholders are taking a stance on the side of increased tax transparency.

Now, as reported by Tax Notes (and republished in Forbes), Microsoft and Cisco are facing similar shareholder proposals submitted by a coalition of shareholders, including AkademikerPension. In support of the Microsoft shareholders’ proposal, the investors have cited last year’s article published by the Guardian, which reported that a Microsoft Irish subsidiary with no employees, and tax resident in Bermuda, had posted $315 billion in profits in 2020 and paid no corporate income tax.

In Cisco’s case, investors cited the company’s lack of engagement with shareholders on tax, noting that Cisco was one of eight companies that failed to respond to the UN PRI engagement.

As with Amazon’s proposal, chances of the proposal passing are low. However, Pensions & Investments Research Consultants (PIRC), one of the shareholder advisors helping investors designing and submitting these proposals, stated that they do not measure success on a strict win-or-lose standard, saying that “a vote of 20% or above sends a message that a significant percentage of shareholders care about an issue and the board actually has to take the issue seriously.”