Investors’ Big Tax Transparency Experiment

By: Nana Ama Sarfo

During the 2022 proxy season, an old question resurfaced: Are investors receptive to corporate tax transparency proposals, and to what extent? Investors tested this question on proxy ballots at Amazon, Cisco, and Microsoft, and the results showed that tech shareholders are warming up to transparency, although they haven’t fully embraced it. And as the proxy season draws to a close, a new question for the future is whether investors in other sectors and industries might advance the tax transparency conversation as well.

At this year’s annual shareholder meetings, investors at Amazon, Cisco, and Microsoft voted on proposals urging the tech giants to voluntarily disclose their public country-by-country tax information in line with the Global Reporting Initiative’s 207 (GRI 207) tax standard. Companies reporting under the GRI 207 standard voluntarily publish several disclosures about their tax strategies and structures, including their CbC tax data, approaches to tax governance and tax risk management, and engagements with stakeholders. None of the proposals passed, but all three received support from over 20 percent of voting shareholders.

Twenty percent may not seem like much, compared with voting trends on other issues like greenhouse gas emissions. However, it is high for tax transparency proposals, which have historically been blocked from a vote or in some cases defeated by 99 percent of shareholders. This time around, the investors moved in a coordinated fashion, with support from Pensions & Investment Research Consultants Ltd. (PIRC) and the Centre for International Corporate Tax Accountability and Research (CICTAR), which coordinated the proposals at all three companies.

Amazon was the first of the trio to vote on public CbC reporting and 21 percent of voting shareholders approved the GRI proposal. It was unclear how to interpret the results; was the figure uncharacteristically high, or perhaps the start of something new? Subsequent results from Cisco and Microsoft — 27 percent and 23 percent of voters, respectively, approved the GRI proposal — show that the Amazon vote was not an outlier. For example, Microsoft fielded six shareholder proposals this year, and the tax transparency proposal received the highest percentage of approval votes.

The results at Amazon, Cisco, and Microsoft also suggest that perhaps a baseline level of support for transparency is emerging, although it is too early to definitively say. In the case of Microsoft and Cisco, institutional investors were reportedly split on the proposals. Norges Bank Investment Management, the California Public Employees’ Retirement System, Dutch pension fund PGGM, and the Office of the New York City Comptroller supported both proposals. APG Asset Management supported only the proposal at Cisco, and the California State Teachers Retirement System opposed both proposals, according to Responsible Investor.

These proposals also faced strong opposition from the tech companies. All three issued opposition statements arguing that the tax data they publish in their financial statements is sufficient and warned that new, more granular disclosures could hurt their businesses and also present an incomplete tax picture.

“Detailed disclosures required by the Tax Standard could result in unintended negative impacts, including the release of proprietary competitive information regarding our operations and cost structures,” Microsoft said in its opposition statement. “We believe the Tax Standard’s narrow focus on corporate income taxation also oversimplifies a complex system of fiscal and public policy determinations each country makes on revenue sources, including consumption taxes, individual taxes, business taxes, etc.”

Moving forward, it will be important to see how these proposals are received across different industries. In a statement provided to Tax Notes, PIRC said it and CICTAR will continue to discuss GRI 207 with multinationals.

“We have consulted with governments and shared our experience, in the hope of bringing about a globally standardized tax framework, with the transparency that shareholders need and deserve,” Tom Powdrill, PIRC’s head of stewardship said in the statement.

In 2022, investors targeted tech companies, but extractive companies appear to be the next big target for 2023. In November, Oxfam announced that it filed shareholder resolutions asking ExxonMobil, Chevron, and ConocoPhillips to file tax transparency reports in line with GRI 207. Those resolutions have been submitted for the companies’ upcoming annual general meetings, which will all be held in May 2023. Another area that could be of interest is the healthcare sector: the U.N.’s Principles for Responsible Investment previously engaged healthcare companies on public CbC reporting and found them to be more responsive than tech companies, but reluctant to adopt public reporting.