Global Corporate Tax Gap in the Multi-Billions Says MSCI
Mondays 13th Financial Times has reported MSCI that ‘listed companies in developed markets are avoiding at least $82bn of tax a year by using tax havens and other minimisation strategies, according to detailed analysis of more than 1,000 businesses.’
The revelations come as Local Authority Pension Fund Forum Chair Kieran Quinn confirmed separately in an exclusive interview with FTFM that the Forum has launched the Corporate Tax Transparency Initiative (CTTI), writing to every FTSE 100 company in late March seeking technical information via ten detailed taxation questions around tax related governance and accounting practices, taxation risk management and minimisation strategies.
The MSCI report found that: ‘At least 40 per cent of MSCI World companies domiciled in Bermuda, Ireland, Belgium, the Netherlands, Switzerland, Canada, Hong Kong and Luxembourg were found to have large tax gaps, along with 27.1 per cent of US companies and 22.5 per cent from the UK. Japan came bottom of the list, with just 7 of its 193 companies in this camp.’
‘Tax avoidance is an issue investors are increasingly aware of,” said Alex van der Velden, founder and chief investment officer of Ownership Capital, the Dutch asset manager, told the FT.
‘The public ire that has been created by businesses found aggressively pursuing loopholes to pay abnormally low taxes has been significant and has led to serious reputational issues. Such risks can have material long-term financial implications.’
‘Investors were viewing the aggressiveness of a company’s tax planning as a proxy for accounting risks and the company’s broader management style,’ Ms Linda-Eling Lee, MSCI global head of environmental, social and governance research stated.
Noted international corporate accountancy and tax authority Richard Murphy from Tax Research UK says the MSCI methodology is robust but puts the $82bn estimate ‘at the low end’ due to ‘opaque accounting’ amongst many corporates.
The separate LAPFF CTTI Initiative in quizzing the FTSE100 is part of wider efforts by the £160bn pension fund group to lift corporate transparency around global tax practices as institutional investor scrutiny and pension fund focus slowly turns to towards international tax reform issues.
Drafted by Richard Murphy of Tax Research UK initially foreshadowed by the Forum in January 2015 the CTTI Question Bank is applicable to most large listed companies and can be used as the basis of an investor template for tax disclosure in other major international Indices.
The LAPFF Chair used his Financial Times feature length interview to provide both a rebuke and some reassurance to the FTSE100. ‘Clearly some of the [examples of tax minimisation] we have heard about recently are not just about clever accountancy — in our view it is very close to criminal activity,” Mr Quinn said in reference to the ‘Luxleaks’ and ‘Swiss Leaks’ international tax avoidance scandals uncovered by the International Consortium of Investigative Journalists (ICIJ).
‘The CTTI Question Bank] letters form part of an information-gathering exercise to enable the LAPFF to identify which companies are the leaders and laggards in terms of appropriate tax arrangements.’
‘We are not setting traps here. No one is trying to catch anybody out. We are genuinely trying to have a conversation with these companies to understand what resources they put [towards managing their tax affairs], Mr Quinn said.
Mr Quinn acknowledges that getting some companies to respond to the questions will be an uphill battle. ‘I could write a book one day on the reasons why companies say they cannot give us information,’ he told Madison Marriage of FTFM.
The current initiative follows from late 2014 where LAPFF together with the Quebec-based pension fund Batirente, the UK’s Royal London Asset Management, French based Triodis Investment Management and Parisian manager Ofi Asset Management called on the leaders of G20 economies to back the OECD BEPS Action Plan and work together on global tax transparency and modernisation of the international tax framework.