Cisco has urged shareholders to vote against a tax transparency proposal at its annual general meeting as pressure mounts on large US tech companies to be more open about their finances.
Cisco is the second US tech company to put country-by-country tax reporting measures to an investor vote, following Amazon’s unsuccessful attempt to block a similar resolution earlier this year.
“Having seen Amazon try to throw out our proposal, it is pleasing to see Cisco accept the need to put this to a vote,” said Gerald Cooney, chair of the Greater Manchester Pension Fund, one of three investors to file a resolution calling for Cisco to release a tax transparency report prepared under the Global Reporting Initiative’s tax standard.
“There are serious concerns regarding the company’s financial practices, which, with increasing global policies on tax transparency, could pose risks for investors like GMPF,” Cooney said.
The resolution at Amazon was not passed, but achieving 21 per cent shareholder support paved the way for investors in other companies to be more vocal about what tax information they wanted to be made publicly available.
The GMPF co-filed the tax transparency resolution at Cisco with Italian asset manager Etica Funds and the Missionary Oblates of Mary Immaculate-United States Province on June 24.
Tax transparency resolutions filed at Amazon, Microsoft and Cisco over the past year have been co-ordinated by Pirc, Europe’s largest independent corporate governance and shareholder advisory consultancy, as part of a larger campaign targeting 30 companies in sectors with a reputation for tax avoidance or that have governments as customers.
Microsoft has not yet confirmed if the resolution will be included at its next shareholder meeting. In a letter to Pirc, Cisco recommended that shareholders vote against the resolution because it would “potentially have an adverse impact on our business”. The date of the meeting has yet to be announced.
Public country-by-country tax reporting remains limited, but private reporting to tax administrations has been required by large multinationals since 2014 under an OECD initiative. Some companies have chosen to make this information public.
A report carried out by FTSE Russell, a subsidiary of the London Stock Exchange, in June 2021 found that 1 per cent of corporate tax paid by US companies was reported publicly on a country-by-country basis, compared with 24 per cent in developed Europe.
Opinion is divided on the utility of public reporting. “I understand why some shareholders and analysts want to see the country-by-country reports, but the reports can be as misleading as they are helpful,” said Peter Barnes, a tax specialist at the Washington law firm Caplin & Drysdale. He said the allocation of intangible assets was not robustly disclosed in country-by-country reports, making tax liabilities difficult to determine.
Monique van Herksen, a partner at law firm Simmons & Simmons specialising in transfer pricing, voiced similar concerns. “Tax information is sensitive information that can easily be misinterpreted. Reported information can be quoted out of context,” she said.
The GRI standards are used as a voluntary “best practice” framework for sustainability reporting with the tax standard introduced in January 2021. While it is used by about 20 European companies including Allianz, Anglo American, Nestlé and Phillips, take-up in the US has been limited.
European financial groups have had to report on a country-by-country basis since 2015. A study by researchers at the University of Cologne found that banks that had activities in tax havens increased their effective tax rates by 3.7 percentage points more than those that did not follow the requirement to publicly disclose on a country-by-country basis.
The European parliament voted to include public country-by-country reporting as obligatory for all EU companies with at least €750mn total consolidated group revenue from 2024. Australia has similar momentum, with the Treasury running a consultation on the implementation of country-by-country tax reporting.
Some appetite has been shown in the US too, with public country-by-country reporting included in the Disclosure of Tax Havens and Offshoring Act introduced by lawmakers last year. But Reuven Avi-Yonah, professor of law at the University of Michigan, said it was unlikely this could pass before 2024 — if Republicans take the House of Representatives in November as expected.
Grant Wardell-Johnson, global tax policy leader at KPMG, said: “There are considerable difficulties in disclosing tax numbers but direction of travel is towards greater transparency so companies need to do utmost to deal with those difficulties.”
Source: Financial Times