Stockholm (NordSIP) – Sampension, the third largest pension company in Denmark, has decided to make the tax transparency of multinational corporations an independent theme in its work on Responsible Investment. Following an announcement earlier last month in which the manager declared its intention to expand RI policies on the basis of climate change, human rights and CSR, Sampension will extend its systematic screening of taxation to incorporate tax disclosure obligations.
Sampension, which manages industry-wide pension schemes for white collar employees of the Danish central government and Denmark’s municipalities, will thereby expand its screening to assets held in Sampension KP Life Insurance, the Architect’s pension fund (Arkitekternes Pensionskasse), and the pension fund for Agricultural Academics and Veterinarians (Pensionskassen for Jordbrugsakademikere & Dyrlæger).
The company is taking this initiative in the wake of a new analysis by international screening agency Vigeo Eiris, which has investigated the tax reporting of 1,139 multinational companies. Vigeo’s findings show that only 2.5% of these multinationals provide detailed information about their tax returns and follow OECD guidelines on tax disclosure. Most companies publish only partial tax payments or partial details of operations in countries or regions with jurisdictions imposing particularly low tax rates. Just short of 10 per cent of those sampled disclose nothing.
Sampension has collaborated with Vigeo Eiris over several years to screen Sampension’s portfolio of listed companies to bring it in line with its RI policy. Now, its initiation of a tax dialogue with companies in its portfolio is to help the process along of transparency of multinational companies in the countries in which they are active. Lack of tangible results on behalf of companies included in Sampension’s portfolio can henceforth result in the exclusion and blacklisting of the company and divestment of its shares.
“The lack of openness about taxation among multinational companies is worrying, and we see increased transparency as an important means of ensuring that companies operate within the framework of applicable legislation,” Sampension CEO Hasse Jørgensen said in a press release. “This is the premise we demand in order to invest customers’ money in these companies.”
Every sixth company investigated by Vigeo Eiris had faced one or more charges of tax evasion. The agency estimates that developing countries lose at least $70-120bn annually as a result of highly aggressive tax planning from multinational companies.
Tax transparency is an extension of the ESG themes Sampension is reinforcing its active management and dialogue with companies about, reflecting its decision to increase focus on RI earlier this year, as reported by NordSIP. Sampension’s Board of Directors already formulated its central requirement for corporate tax behaviour as part of its RI policy overhaul in 2014, which forbids structures for tax reductions in clear violation of legislator intentions.
However, like most institutional investors, Sampension invests in funds located in areas often referred to as tax havens. Among the advantages Mr Jørgensen lists is that the fund itself is not taxed in the area in question, allowing it to serve as a conduit for returns reaching investors in many different countries, where the investor pays the appropriate taxes in the home country.
Here, Mr Jørgensen echoes Finnfund CEO Jaakko Kangasniemi, who in response to revelations published this week in the so-called Paradise Papers that Finnfund is invested in a sustainable investment fund in the Cayman islands, explained that “[f]rom the perspective of a fund investor, the Cayman Islands is a stable country with predictable arrangements,” where the intention is not to pay taxes in the country where the investment fund is registered, but for returns to circulate through the state where the fund is registered and for project organisations and investors to pay taxes in their own countries.
Companies defend such practices to avoid unintended double taxation.
“Sampension does not contribute to structures aimed at avoiding taxation due in the country where economic activity is taking place, or in Denmark, where the ultimate income recipient lives,” Mr Jørgensen explains, adding that Sampension has also issued clear instructions to so-called “stock lending programs” that it does not contribute to the third party’s possible tax arbitrage.
These are the requirements for Sampension’s own presence in countries such as Guernsey, Jersey or the Cayman Islands. Pre-analyses of tax due diligence to ensure the tax structure meets these requirements is always performed prior to Sampension’s fund investments in any country, he said.
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