Investors Offer Tips on How Corporates Can Improve Tax Disclosure

In a global economic landscape dominated by concerns about economic slowdowns and growing inequality, companies minimizing tax payments through aggressive tax planning strategies have become a key focus area for governments, international regulators and civil society.

As such, the Principles for Responsible Investment (PRI), the world's leading proponent of responsible investment, 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. This was borne out of the 2015 Engagement guidance on corporate tax responsiblity, which was developed by the same investor taskforce.

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.

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.

According to the investors, a 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.

In the future, the PRI will likely hold a collaborative engagement on tax.

“Investors’ recommendations on corporate tax disclosure intends to better enable investors to assess corporate tax strategies and will support better dialogue with companies,” said Valeria Piani, associate director, ESG Engagements. 


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