Ethos publishes an Engagement Paper that summarizes its five expectations regarding corporate tax responsibility of listed companies. Following recent cases of aggressive tax optimization practices of certain companies, institutional investors consider these practices to be major financial and reputational risks for companies and their shareholders
The 137 members of the Ethos Engagement Pool Switzerland (EEP Switzerland), who manage assets of more than CHF 200 billion, have asked Ethos to include the issue of corporate tax responsibility into its Engagement program with companies. In this context, Ethos has identified international best practices and drafted an Engagement paper which will be sent to the chairmen of the boards of the 150 SPI companies included in the engagement universe of the EEP Switzerland.
A long-term risk for investors
Institutional investors today are sensitive regarding the tax strategies of the companies in which they invest. Certain aggressive tax optimization practices constitute a long-term risk for companies and their shareholders, both in terms of reputation and financial risk, for example in the event of having to pay a fine or additional tax charges. It is therefore essential for companies to well define the principles of their tax strategy.
Companies need to become more transparent
Companies listed on the Swiss Stock Exchange still publish very little information about their tax strategy. However, as an OECD member state, Switzerland has actively participated in the development of the BEPS action plan, which is intended to prevent the erosion of the tax base and the shift of profits abroad. The action plan requires in particular the documentation of transfer prices and the implementation of country-by-country tax reporting for companies with a consolidated annual turnover of at least EUR 750 million. In Switzerland, the text of this agreement and a new law were adopted by the Federal Assembly on 16 June 2017 and entered into force on 1 December 2017. Multinational companies domiciled in Switzerland must therefore prepare their first country-by-country tax reporting as of the 2018 tax year. As opposed to the European Union, Swiss legislation does not foresee the publication of the country-by-country reporting that must only be filed with the tax authorities. However, certain leading non-Swiss companies already publish this information on a voluntary basis.