A Step Towards Tax Transparency

News reports occasionally detail how large corporations, like Amazon and FedEx, manage to avoid paying any federal taxes. Adding to my personal dismay, the Institute on Taxation and Economic Policy (ITEP) report that, in fact, 60 Fortune 500 companies avoided all federal income tax in 2018, including: Chevron, Delta Airlines, Eli Lilly, General Motors, Gannett, Goodyear Tire and Rubber, Halliburton, IBM, Jetblue Airways, Netflix, Principal Financial, Salesforce.com, US Steel, and Whirlpool. The full list of those that did not pay a dime is available here. We also know of companies that relocate to tax havens or companies that undergo a “corporate inversion” so that the foreign subsidiary becomes the parent company. At the end of the day, one asks: how do we better understand and compare the tax practices of different companies?

At the conclusion of the ICCR Fall conference (November 1), I went to Bloomberg for an event on Tax Transparency organized by AFSCME, the Fact Coalition, Global Financial Integrity, Oxfam America, and the Patriotic Millionaires. Yesterday (December 5), these same organizations announced the launch of a new global standard for tax transparency. The new global standard includes:

  • Reporting within the context of corporate sustainability;
  • Disclosures on tax strategy, governance, and risk management;
  • Public country-by-country reporting of business activities, revenues, profit, and tax;
  • And disclosure of the reasons for difference between corporate income tax accrued and the tax due.

A few of the remarks from the launch event have been shared with me, and I pass them on to you:

Why is tax transparency important?

Like most voluntary disclosures, companies that are doing the right thing disclose because the market rewards this behavior. Companies that are not doing the right thing are less likely to disclose, reflecting the potential for a financial risk and/or reputational risk.  Efforts like the new standard issued by the Global Reporting Initiative aim to allow for apples to apples comparisons.

A well-grounded tax strategy must be sustainable. These tax disclosures are valuable for investors because, for instance, a company with a very low tax rate raises questions about the sustainability of the rate and, consequently, a risk to earnings down the road. For investors, knowing the tax rate paid by a company discloses something about the risk tolerance of management and board. Bad practices have a habit of catching up with companies. A company may be exposed to penalties, fines, and clawbacks. The leaking of the Panama Papers resulted in recovery of $1.2 billion in taxes and penalties to date.

More importantly, taxes finance important undertakings like roads, schools, and government, things that companies and investors rely upon. A bedrock principle is that one should pay taxes where value is created. The Tax Standard clarifies how much companies contribute in taxes to the countries where they operate and, thereby, allows us to better see the impact of tax avoidance on the ability of a government to fund critical services and to encourage sustainable development. As the late Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice, put it: “Taxes are what we pay for civilized society.”

We at SGI believe that this new standard is an important step forward and encourage companies to disclose according to this standard.

For more information:

Corporate Governance Webinar

At the heart of this webinar is the conviction, born of evidence, that transparent and accountable corporate practices correlates to higher shareholder value and lower volatility in share prices. A company run well will deliver superior financial returns, over the long term, than a company that does not adhere to principles of transparency and accountability,

On Thursday, August 29, we were joined in our quarterly webinar by two leaders within the Interfaith Center on Corporate Responsibility (ICCR): Tim Smith of Walden Asset Management and John Keenan of  American Federation of State, County and Municipal Employees (AFSCME).

We are very grateful for the presence of both our guests in this webinar, for their commitment to work on these issues, and their generosity in sharing their wisdom with us.

As always, we welcome your feedback via a confidential evaluation found here. Slides from the webinar are found here.

Businesses and Investors Need to Act on Climate Now

Alicia Seiger writes in The Stanford Social Innovation Review:

The business case for acting on climate change has never been stronger, and the need to act has never been more urgent. For the past three years, worldwide carbon emissions from fossil fuels have stayed flat while gross domestic product (GDP) has grown, demonstrating that emissions and economic growth aren’t inextricably linked. Decoupling emissions and growth is just the first step. To stay within the carbon budget for 2 degrees Celsius warming—and avoid the most catastrophic impacts of climate change—global emissions have to start falling by 2020. While the President of the largest economy in the world blows headwinds at progress, business leaders and investors must act to bend the emissions curve.

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