Firms Tighten Scrutiny on Companies’ Tax Footprints

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Tighten Scrutiny

Asset management firms, including Federated Hermes Inc., Robeco Institutional Asset Management, Van Lanschot Kempen NV, and Mirova are tightening the scope in scrutinizing the tax footprints of stocks. Companies offering less than 15% in tax revenues from their profit margins are under the lens. This evaluation will guide asset managers to determine the sustainability and fiscal responsibility of companies, and those failing to meet the 15% minimum tax might lose attractiveness in the stocks market.

This growing trend aligns with the global push for fair corporate taxation. The intensified scrutiny may indicate a shift in market dynamics, where companies upholding their tax obligations stand a higher chance of attracting investors and promoting sustainable business practices.

Most of this attention arises from global governments trying to recoup economic loss from the pandemic. Van Lanschot Kempen has taken a proactive measure by adopting stringent tax risk analysis and excluding certain entities from its portfolio, thereby minimizing potential regulatory backlash.

Eszter Vitorino from Van Lanschot Kempen warns against underestimating tax-related risks. Similarly, Joanne Beatty from Federated Hermes expresses concern about unsuitable tax strategies bringing about considerable financial losses and tarnishing corporate reputation.

In 2023, shareholder motions addressing tax threats doubled, with four recent instances involving corporations like Exxon Mobil Corp., Chevron Corp., and ConocoPhillips. These corporations stress their compliance with tax laws and maintain high standards of corporate responsibility.

Currently, EOS, advising investors with roughly $1.4 trillion in assets, is engaged with 30 companies based in the U.S. and Europe. They are concerned about their tax history and are encouraged to adopt more responsible and transparent practices.

According to the Organisation for Economic Cooperation and Development (OECD), governments face an annual revenue deficit between $100 billion and $240 billion due to companies exploiting cross-country tax system differences. This prompted over 130 countries to enforce a minimum universal corporate tax rate, aimed at preventing future revenue loss and fostering fair competition.

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