Shareholder activism raises bar in "moral tax" debate
Google which has been in the forefront of the debate on "moral tax" in last couple of years, seems to be facing "tax activism" from its own shareholders.
Google's 2014 annual general meeting (AGM), which is scheduled on May 14, contains a very interesting proposal on "tax policy principles". The full text of the proposed stockholder resolution has been provided in Google's notice for 2014 AGM - on page 68 , Proposal No 7 (click here to read the notice and proposed resolution).
A group of shareholders, under this proposed resolution, has requested the Board of Directors to adopt a set of principles to address the impact of Google’s tax strategies on society, with particular focus on Google’s employees, customers and suppliers.
The Preamble to the resolution outlines that "When multinational corporations exploit differences in national tax codes to reduce their taxes, they undermine democracy and rule of law. Corporations and investors depend upon government services funded by tax revenues, including law enforcement, market regulation, judicial systems, infrastructure maintenance, public education, poverty alleviation, environmental protection, national defense and scientific research. These services cannot be funded by corporate philanthropy or a rise in share price.....Google’s complex tax arrangements may result in misallocations of capital and mask the true sources of long-term value. World leaders have endorsed an action plan to address the tax challenges of the digital economy, which could radically alter the financial position of companies that rely on aggressive tax strategies".
Blaming the international tax rules as "fiendishly complicated", Google's Board has proposed vote AGAINST the resolution. Google's Board in its reply has stated "that we have structured our operations in a manner consistent with all applicable tax laws and that we are thereby satisfying our fiduciary duties to our stockholders as well as our legal obligations in each of the countries in which we operate and conduct business." Google's Board accordingly has concluded that the proposal is not in the best interests of company and its stockholders,
In the Indian context, under Sec 109 of the New Companies Act, 2013, a poll may be demanded "in the case a company having a share capital, by the members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than five lakh rupees or such higher amount as may be prescribed has been paid-up". So a similar tax specific resolution could also be mooted by a group of shareholders.
It would be interesting to see the deliberations on Google resolution on May 14...but the event certainly raises the threshold of the debate on "moral taxation". Is compliance with the letter of the law, sufficient to meet "moral tax" test? How would shareholder return and tax cost conflict be resolved ? After NGO, media, the "shareholder activism" to tax morality debate would be an interesting factor to watch out for.