Tax avoidance by means of aggressive tax planning by companies has been the focus of a major debate recently. In response, international governments have recognized that tax rules need to change. Triodos is currently investigating how it should respond to the developments.

Criticism of multinationals

Several multinational companies such as Starbucks and Google have come under fire for tax avoidance. In response to the criticism, Starbucks announced that it would voluntarily pay more tax in the UK than it was legally obliged to do. Google’s Chairman recently welcomed promises by international leaders to crack down on tax loopholes.    
Companies generally have not violated any legislation, but the methods they use to optimize their tax-requirements have met criticism. There are multiple ways in which a company can reduce its tax burden. Well known is the use of tax-havens (jurisdictions that are known for their lenient tax-regimes). Another method for tax-avoidance is the use of ‘transfer pricing’ for goods and/or services exchanged between entities within the same group or company, enabling multinational companies to re-allocate profits to countries with a more beneficial tax regime.

Triodos opinion

Triodos Bank’s view is that companies have a responsibility to pay their fair share of tax, and that multinational companies should pay taxes in the countries where their economic activities occur. Triodos Bank therefore welcomes the recent action plan of the OECD to improve and harmonize tax rules with the aim of curbing tax avoidance.

Triodos questions investee companies

Triodos’ socially responsible investment funds (SRI funds) invest in both Starbucks and Google. Because of that we have carefully reviewed these cases. Triodos recognizes that almost all large companies are involved in similar tax arrangements. To gain a better understanding of this issue, Triodos sent a questionnaire on tax transparency to all 125 investee companies in the four Triodos SRI funds. The response to the questionnaire was high. The responses told a story that tax transparency is still not high on the public agenda for the majority of companies.  Only four companies responded to have a publicly available tax policy, namely Johnson Matthey, Novo Nordisk, Reed Elsevier and WPP. The policies typically comprise the following principles:

  • To pay the appropriate amount of tax and comply with all laws and relevant regulations;
  • To maximize shareholder value and to manage financial and reputational risk, and
  • Not to engage in tax-avoidance activities


Country-by-country reporting

The Triodos questionnaire also sought to determine if companies publicly report on the amount of tax they paid per country. This so-called country-by-country reporting, is a first material step towards tax transparency. In the extractive industry this is already obligatory. It will also become mandatory for European banks as from January 1st, 2015. Several companies commented that they do not disclose country-by-country information for competitive reasons and the associated administrative burden. British mobile telecommunication company Vodafone already reports on a country-by-country basis, with amounts of income taxes paid in all the 25 countries of operation published in its’ 2013 Sustainability Report.

Developments in Triodos investment policy

Excluding companies for the use of tax planning or optimization would have an enormous impact on the investment universe and will not do justice to the complexity of the topic. Instead, we will continue our engagement efforts by stimulating companies to increase transparency on tax policy, effective tax rates and risks related to tax. Once there is a more crystallized overall international opinion on what will be generally acceptable and responsible tax planning , Triodos will consider to introduce minimum investment standards.

Note: The issues explored in this article are relevant for sustainable investments on the stock market. Triodos Bank believes that our socially responsible investments are a powerful means of promoting our values and working for greater sustainability, while enabling us to offer a complete range of attractive investment options to customers who choose to invest on the stock market.