Triodos supports a fair and effective tax system, taking into account the interests of all stakeholders.

Risks of tax planning

A recent study on MSCI companies called Re-examining the Tax Gap identified 243 companies (out of 1.093 relevant companies) with a large so-called tax gap. These companies pay on average 17.7% tax. The jurisdictions in which these companies generate revenues have an average weighted tax rate of 34%. A tax gap may be a potential indicator that a company makes use of aggressive tax planning, although there could be viable reasons why the effective tax rate of a company is less than the weighted average. In the short term, tax planning can lead to a low effective tax rate and subsequently to financial gain for the company and its shareholders. However, this is only one side of the story. Companies and investors are increasingly becoming aware that there are long-term financial, regulatory and reputational risks associated with aggressive tax planning. Aggressive tax planning has been frequently debated over the last years and as a result new policies and regulations are being developed. The expectation is that this will lead to higher corporate taxes and stricter enforcement of responsible tax behaviour.

Responsible and transparent tax behaviour

For investments on the stock market, Triodos Research aims to select companies that operate in line with the Triodos Bank’s principles on tax and tax behaviour . We believe that tax should be paid in the countries where the economic activities take place and thus where the earnings are realized. Through our research and dialogue with companies, we know that responsible and transparent reporting of tax behaviour is not yet well established everywhere.

On 8 July 2015, the European Parliament voted in favour of listed companies reporting country-by-country (CBCR) on profits made, tax paid on profits and public subsidies received. We support CBCR because we believe that in the end it should result in greater disclosure, transparency and comparability. CBCR will help us to set feasible and realistic criteria to comparatively assess corporate tax behaviour. In the meantime, Triodos Research is an active participant in the tax transparency debate and we will continue to engage on an individual level with companies to encourage greater transparency.

Governments also have an important responsibility in this regard. Governments try to persuade companies to settle in their country by offering low tax rates and other incentives. A joint effort by companies and governments is therefore required to find a common ground. Therefore, our engagement efforts are not only aimed at companies - the individual level - but also at governments, the macro level. On 30 June 2015, Triodos Research spoke at a public seminar organized by Members of the European Parliament to discuss the importance of CBCR. We are a member of the UNPRI’s Tax Taskforce, which is developing investor guidance on how to engage with companies on corporate tax issues. The Taskforce’s recommendations will be published on 19 November, 2015.

We hope that these developments will contribute to the establishment of an acceptable general norm for corporate tax behaviour, thus enabling responsible investors like Triodos SICAV I to include this important topic in their investment decisions.

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.