Paying Fair Tax

The Issue

Economies can only thrive when governments have the resources to provide services like education, healthcare, and infrastructure — which demand a healthy tax base. In this context, tax base erosion is attracting increasing attention. Corporations, particularly multinational companies in the digital economy, have been using tax havens and loopholes in international tax regimes to shift profits across borders and minimize taxes paid. As governments look elsewhere for revenues, the tax burden for individuals may increase. Emerging local companies that cannot pursue aggressive international tax strategies may face a competitive disadvantage, which could stifle innovation.

ESG Perspective

It might be supposed that investors would want companies to pay the least tax possible. But aggressive corporate tax strategies may pose investment risk, even if they are legal. Digital economy companies like Amazon and Google have been pilloried by politicians and media on both sides of the Atlantic for their tax approaches, and revenue authorities have launched efforts to recover back taxes. Public outrage against companies seen as failing to pay a fair share has damaged consumer brands such as Starbucks. Meanwhile, international regulatory developments at the OECD and G20 threaten to close tax loopholes, which could create future financial shocks for companies. Tax abuses by multinational companies in developing countries may lead to an increasingly difficult operating environment, creating cynicism about the contribution of the private sector to social development.

Our Response

We engage companies in dialogue on:

  • Developing responsible tax policy principles, as recommended by the OECD Guidelines for Multi-national Enterprises, and reporting on their implementation

  • Providing transparency on subsidiaries, and on profits made and taxes paid in different jurisdictions

  • Ensuring that use of post-tax business performance and executive compensation metrics does not create pressure within the company to pursue high-risk tax strategies