Andrew Howard, Ropes & Gray tax partner, addresses tax coming out of the shadows and becoming part of an environmental, social and governance (ESG) agenda.
Transcript:
Hi, I'm Andy Howard. I'm a tax partner in Ropes & Gray's London office. In this video, I'm going to talk about tax coming out of the shadows and becoming part of an environmental, social, and governance agenda.
Tax as an ESG issue
I wouldn't immediately think about tax as an ESG
(environmental, social and governance) issue. However, in May 2018
the UN-backed Principles for Responsible Investment investor group
published a paper on corporate tax. It turns out that the PRI has
included tax as part of its remit since 2014.
PRI's new paper focuses on transparency and
disclosure
The PRI's new paper focuses on transparency and disclosure.
Increased transparency and disclosure is also the direction of
travel in tax law in both the UK and within Europe more widely. To
give just a couple of examples, the UK has recently required large
corporates to publish their tax policy, whereas the EU continues to
mull over whether to make companies make public their country by
country reports. It therefore wouldn't be surprising to see
elements of the PRI's agenda becoming adopted by lawmakers in
the near future.
Potential impact to the private equity
industry
The private equity industry has always paid careful attention to
tax matters. My recent experience in negotiations on fund raising
on both sides of the table is that investors are now more than ever
focused on tax issues, particularly as a result of changes coming
out of the BEPS Project. It's also the case that a lot of
investors are focused on ESG issues. It is, however, still rare to
hear a link being drawn between the two, but that may change. Some
private equity houses may see an opportunity here to make a virtue
out of a necessity by embracing the ESG agenda. We've already
begun to see some large corporates take this approach.
Embracing the ESG agenda does not mean abandoning tax
efficiency
Embracing the ESG agenda need not mean abandoning tax efficiency.
According to the PRI, it's about striking a balance between
controlling the tax bill and paying a fair share. There's no
question of voluntarily and unnecessarily paying additional
tax.
What does PRI tax transparency involve?
So what might be involved? First, publication of a comprehensive
tax strategy. Second, information on the company's governance
of tax matters. And thirdly, performance transparency about the tax
strategies that are being adopted by the company.
Risks in embracing the ESG agenda
Of course there are risks in embracing this agenda. Uncertainty
remains as to what constitutes appropriate tax planning. Even the
most conservative firms may find that some historic practices could
be questioned. In addition, there's extra work involved in
trying to work out what additional and voluntary disclosures to
make, and how best to present it. However firms react to this
initiative, this is another example of the new risk perspectives
that are driving change in the tax world.
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