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ANALYSIS

Pension funds put pressure on G20 tax reform

Pension funds are becoming vocal ahead of the G20 leaders summit next week, reiterating the need for action over tax reform, and encouraging world leaders to consider financial reform that encourages long-term investing.

The UK’s Local Authority Pension Fund Forum, which is a collaborative shareholder engagement group of 61 local authority pension funds with combined assets of £150 billion, has called on G20 leaders to work collaboratively to implement systemic change that embodies transparency and disclosure in all relevant multilateral, bi-lateral, legislative and regulatory processes and agreements.

“It is our view that financial secrecy and aggressive tax practices do not best meet our underlying objectives as inter-generational investors aiming for sustainable value creation. Such practices also hinder the internal efficiency and capability of financial systems to more effectively identify, develop and match productive investment opportunities and long-term value creation strategies with the patient capital contained within retirement funds and national savings pools.”

Under the broader umbrella of building global economic resilience, one of the goals of the G20 is “modernising the international tax system to keep pace with the changing ways people and companies do business”.

In a statement, the LAPFF said that the OECD/G20 initiatives to build global economic resilience are vital to increasing stability and integrity in financial markets and mitigating risk of damage to national economies, retirement savings and the trust of civil society in the operation of global capital, its key institutions, banks and transnational corporations.

“It is our view that taxation reforms that ensure comprehensive transparency and disclosure on a country by country, public basis will best assist us as asset owners to undertake our own investment governance, risk management and due diligence obligations, vital to carrying out our fiduciary duties.”

Separately, global trade unions have unveiled a new initiative to tackle tax evasion by integrating tax risks into responsible investment policies in pension funds worth more than $20 trillion where unions and their trustees are involved in fund governance.

The global union call for action for pension fund responsible tax practices, is a a statement signed by 45 union bodies from 19 countries and supports rule changes for fair and responsible tax practices as envisioned by the G20 OECD Action Plan on Base Erosion and Profit Shifting (BEPS).

“Attempts to increase short-term returns through aggressive tax planning undermine the sustainability of our economies. As the stewards of workers’ capital, pension funds should to take reasonable steps to address tax risk in their investment portfolios,” Sharan Burrow, ITUC general secretary said.

The initiative sets out trade union expectations on how pension funds should address tax risks, including evaluation processes for existing investments, conducting due diligence for any new investment mandate, encouraging corporate country-by-country tax reporting, and engaging with external fund managers to that end.

The trade union statement also raises concerns about the growing pressures from business groups and large multinational enterprises to push back against the G20-endorsed OECD BEPS Action Plan, a 15-point plan to ensure taxable profits are allocated where actual business activity occurs.

“This OECD Action Plan could be improved, but it is heading in the right direction,” John Evans, general secretary of the Trade Union Advisory Committee to the OECD (TUAC) said. “Pension funds are long term asset owners, they should raise their voice to support, not weaken this global tax agenda”.

Meanwhile the investors attending the Fiduciary Investors Symposium at Harvard University, along with representatives of The World Bank, the United-Nations backed PRI and the ITUC, sent a letter to the G20 host, Prime Minister Tony Abbott of Australia asking the G20 leaders to consider reform and regulation that and encourages long-term investing.

To see the letter click here – G20 letter

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