Danish, UK pension funds tell corporates to improve tax reporting

Pension funds in the UK and Denmark are putting pressure on major companies to improve transparency on tax reporting.

Danish labour-market pension fund Sampension is stepping up its focus on tax reporting by multinationals, while in the UK the Local Authority Pension Fund Forum (LAPFF), which represents a group of public pension funds, has called for better tax transparency on behalf of the country’s largest listed companies.

Sampension, which had DKK268bn (€36bn) in assets under management at the end of 2016, announced it was making tax transparency by multinational firms a separate theme in its responsible investment approach. 

It said only 2.5% of multinationals apply OECD tax guidelines and report comprehensively on their tax payments, according to a new report by international environmental, social and governance research provider Vigeo Eiris.

The Danish pension fund – which has used Vigeo Eiris for several years to screen its company portfolio – has had requirements and expectations on corporate tax reporting in place since 2014.

Under these, it does not invest in businesses using structures designed to cut tax payments against a legislator’s intentions. 

“Tax transparency is a fundamental requirement in order for us to invest our customer’s funds in those companies.” 

Hasse Jørgensen, Sampension

Now Sampension is broadening its systematic screening on tax payments to include the obligation to disclose. 

Hasse Jørgensen, the pension fund’s chief executive, said: “This lack of tax transparency among multinationals is a concern to us.”

Sampension said increased transparency was an important means of ensuring that companies operated within the framework of applicable legislation, he added.

“This is a fundamental requirement in order for us to invest our customer’s funds in those companies,” said Jørgensen.

One in six multinational companies have been involved in one or more cases of tax avoidance, according to Vigeo Eiris’ report. The research group estimated that aggressive tax planning practices by multinationals cost developing countries $70bn (€60bn) to $120bn a year.

Explaining its engagement process, Sampension said it communicated directly with multinationals to encourage them to be transparent over tax payments in the countries in which they operate. 

“If a dialogue is not successful, it may ultimately result in Sampension selling its shares in the company and placing it on the exclusion list,” the pension fund said.

In the UK, meanwhile, the LAPFF said it “would encourage” the country’s largest listed companies to improve their tax transparency and lead the way for others.

It said so after being disappointed by many companies’ responses to a new regulation on tax that requires large businesses to publish an annual UK tax strategy.

A study carried out by the LAPFF and Fair Tax Mark, an organisation accrediting companies with good tax disclosure, found that the majority of the FTSE’s top 50 companies had not followed guidance on UK tax regulation “in a prompt and rigorous manner”.

Kieran Quinn, chairman of LAPFF, which represents pension funds with over £200bn (€228bn) in assets, said: “Explaining if and why a business will conduct activity in tax havens is now a basic requirement to build trust and credibility.

“Likewise, a shift toward public country-by-country reporting of profits and economic activity is needed if a business is to effectively communicate how and where it creates economic value.”