Microsoft Investors File Resolution targeting tax practices

Microsoft Corp., a staple of ESG mutual funds, has been criticized by a group of shareholders for its alleged poor track record on tax transparency.

Investors, who collectively manage more than $350 billion, have filed a resolution demanding that Microsoft report under the Global Reporting Initiative’s tax standard, the group said in a statement Tuesday. The resolution also calls on Microsoft to disclose its tax and financial information on a country-by-country basis.

“Technology is a sector that has historically been characterized by tax avoidance, particularly for large multinationals like Microsoft,” said Katie Hepworth, senior tax officer at Pensions & Investment Research Consultants Ltd, who coordinated the decision. The risk of regulatory “investigations and interference” is of particular concern to investors, Hepworth said in a statement.

At this point, taxation becomes a hot topic in Europe, where officials target intricate structures used by multinational corporations to lower or push tax rates to zero. Lawmakers last month unveiled a plan for a 15% minimum corporate tax rate for large companies from 2023, to implement a landmark agreement by 136 countries to stop luring companies with ever-lower tax rates.

According to PIRC, Europe’s largest independent corporate governance and shareholder advisory firm, Microsoft recorded $315 billion in profits in an Irish subsidy in 2020 “even though there are no employees there”. PIRC has supported similar resolutions at Cisco Systems Inc. and Amazon.com as part of a larger campaign targeting 30 companies in industries with a record of tax avoidance or counting governments among their customers.

Cisco officials declined to comment, while Microsoft spokespeople said they would look into the solution but would not comment immediately.

Companies that have failed to respond to efforts by signatories to the UN Principles for Responsible Investment to address tax policy are being targeted by the PIRC campaign, Hepworth said via email.

“Our decision to escalate exposure to technology companies through filing shareholder proposals also reflects the increased risk to investors of tax avoidance strategies stemming from the historic global tax reforms of the OECD,” said Hepworth. Tech companies were “specifically cited as justification for the reforms,” ​​which also aim to end new digital taxes that the US says are discriminatory.

Microsoft’s resolution, filed on June 13, was led by Danish pension fund AkademikerPension, whose co-applicants include Nordea Asset Management, PenSam, Greater Manchester Pension Fund and OIP Trust.

Corporate tax speculation, in which companies shift profits to low-tax countries to avoid higher taxes in the markets in which they operate, costs the US government up to $100 billion a year, PIRC said. Microsoft doesn’t disclose revenue or profits in markets outside the US and foreign tax payments aren’t itemized, making it difficult for investors to assess the risk of tighter tax rules, PIRC said.

Jens Munch Holst, CEO of AkademikerPension, said in a statement, “If Microsoft changes course and adopts the GRI standards for reporting, it will strengthen the company’s brand and raise standards across the global big tech sector.” He also said that “charitable giving in no way offsets large-scale tax avoidance.”

Microsoft is among the most popular ESG stocks globally, thanks in large part to its perceived low carbon footprint. The company is the largest holding in the world’s largest ESG exchange-traded fund — BlackRock Inc.’s iShares ESG Aware MSCI USA ETF (Ticker ESGU) — after Apple Inc., according to the latest regulatory filings tracked by Bloomberg.

Shareholders of Microsoft and other tech companies have recently been successful with resolutions after years of defeat. Last year Microsoft struck deals with two groups in exchange for them withdrawing their proposed proposals; one dealt with the right to repair equipment and the other called for an independent human rights review of some businesses. In November, investors also voted for a non-binding resolution seeking a report on the effectiveness of the company’s sexual harassment policy over objections following reports that co-founder Bill Gates had behaved inappropriately towards female employees years ago.

Frances Schwartzkopff reports for Bloomberg News.

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