Investors urged to look for red flags of poor tax conduct to derisk their portfolios
There is a growing understanding among investors that poor tax conduct is a red flag for an overly negative attitude to compliance in general, and also weak corporate governance. Tax controversies have preceded the financial difficulties of Credit Suisse, Thames Water, Adani and Glencore.
In response to increasing approaches from institutional investors and asset managers, the Fair Tax Foundation has today released a report, Key performance indicators of responsible corporate tax conduct – and their green and red flags, covered in the press by ESG Clarity and ESG Investor.
The report identifies five areas of tax conduct that investors need to consider as part of their investment appraisal and risk management.
The five key performance indicators (KPIs) are:
- Freely available annual financial statements
- Responsible tax commitments that are confirmed annually
- Public Country-by-Country financial reporting
- Disclosures of uncertain tax positions
- Corporate cash taxes paid over a five-year period
Each KPI has associated green and red flags. Red flags include tax cloaking and tax washing.
Paul Monaghan, CEO of the Fair Tax Foundation, said:
“The world is on the verge of an explosion of corporate tax transparency. The voluntary disclosures of progressive businesses (such as Fair Tax Mark accredited companies) will soon be augmented by newly mandated disclosures from large multinational enterprises operating in the European Union, the United States and Australia. This presents both an opportunity and a challenge to investors – how to sieve the enormous pending data release and separate the wheat from the chaff. Not least as there is a growing understanding that poor tax conduct is a red flag for an overly negative attitude to compliance in general, and also weak corporate governance.
“At the behest of a number of investors, we have developed five tax conduct KPIs for institutional investors and asset managers, and suggest that businesses exhibiting five red flags could generally be considered to be high-risk and any investments should be reviewed.”
The Fair Tax Foundation is seeking feedback on the suggested KPIs and associated flags, be that refinement of what is proposed, or entirely new areas of consideration.
Feedback and suggestions can be sent to info@fairtaxmark.net or provided via our contact form.
