Investors Score Huge Win at the SEC in the Fight for Greater Tax Transparency from Amazon

This week, the Securities and Exchange Commission (SEC) handed Amazon investors a major victory in their drive for greater tax transparency. In response to Amazon’s attempts to exclude a shareholder proposal urging greater disclosures, the SEC ruled that the company must include the proposal in its upcoming annual meeting of investors, to be held in May. The move bolsters the growing, global movement of investors in support of public country-by-country reporting (PCbCR) that gives greater insights into, among other things, real operations and investment, human capital, and tax practices of large multinational enterprises. 

The battle over Amazon’s tax disclosures goes back to December, when two Amazon investors, including FACT Coalition member Missionary Oblates, filed a shareholder proposal urging the company to adopt the Global Reporting Initiative’s (GRI) voluntary public country-by-country reporting standard. The GRI standard makes public information on main activities, location of revenue and employees, taxes, assets, and other key financial metrics on a country-by-country basis. Amazon and other large companies already report this information to relevant tax authorities under an international agreement. The “first of its kind” resolution sought to give the company’s investors the chance to vote on the issue at Amazon’s May 25 annual general meeting. In January, however, Amazon moved to shut down the debate by writing to the SEC asking for permission to exclude the resolution from voting. The growing chorus of pro-transparency investors fired back, however, rallying behind a letter in favor of the proposal that was signed by investors representing a whopping $3.6 trillion in assets under management. The SEC’s ruling in favor of investors was a clear indication of prioritizing investor concerns and may set the stage for further action. 

The Growing Case for PCbCR

While what’s happening at Amazon has attracted particular attention, it’s hardly a one-off case. On separate occasions, investors representing trillions in assets under management have also written to Congress and the Financial Accounting Standards Board (FASB) in the last year calling on them to advance rules similar to the framework advocated for by Amazon shareholders. In June, the U.S. House of Representatives passed the Disclosure of Tax Havens and Offshoring Act, which would require corporations to disclose key financial data on a country-by-country basis. The bill now awaits debate in the Senate. Internationally, the European Union has also pushed forward on partial tax transparency measures for companies’ operations within its member states and in select, EU-identified tax havens. As the pressure has built up, some corporations, such as Shell, have risen to the PCbCR challenge, and others have proactively adopted the voluntary standards for tax reporting under the GRI. Philips, BP, Orsted, Allianz, and Newmont have all adopted some version of the GRI’s PCbCR standard. 

Investors and other stakeholders are paying increasing attention to PCbCR – whether motivated by the bottom line; more sustainable investment; or the growing utility of this information in understanding the interplay between our markets, tax systems, and geopolitical events. When companies’ tax avoidance strategies can run up an underpaid tax bill into the billions, it’s not hard to see why investors would want this information to shield themselves from risk. PCbCR allows investors to keep their funds in investments that generate sustainable, long term profitability, rather than those that exploit unreliable and risky tax gimmicks. Meanwhile, especially in light of the SEC’s movement on climate disclosure rules last week, investors could also use tax transparency as a strong complement to climate disclosures. Moody’s recently began a consultation process to refine their ESG methodology to include tax transparency, after the ratings agency started recognizing the close relationship between where a company operates and pays taxes and that company’s environmental impact.
As recent events have shown, however, there’s more than just tax risk that could be reflected through country-by-country reporting. There are geopolitical risks at play as well. As several companies, Amazon among them, partially shutter or fully close their Russian operations in response to the invasion of Ukraine, investors have been left wondering if they’ll be exposed to the world’s next geopolitical crisis between two countries. Currently, this information is often reported in clunky terms: by a “black box” division of international v. domestic operations, or by unhelpful regional groupings. PCbCR provides clearer insight for investors and other stakeholders exploring geopolitical risk, including for individual companies or markets more broadly.

For Companies and Regulators, the Time for Action is Now

Given the growing case for PCbCR, it is time for companies and regulators to do their part to advance transparency. Responsible multinationals can also take the fight for tax transparency into their own hands by adopting the GRI’s PCbCR standard. Implementing the easy-to-use standard would only require that companies reapply information from their existing tax reporting obligations to the IRS and other tax authorities. 

For its part, the SEC should be commended for giving all Amazon investors the chance to vote on the Amazon shareholder proposal. The precedent set by this decision may spur tax transparency shareholder proposals targeting other multinationals. But, in recognizing the significance of PCbCR for Amazon, the SEC should also acknowledge that ad-hoc disclosure earned one shareholder proposals at a time based on voluntary standards would not provide decision-useful information for investors and other stakeholders necessary to protect investors, efficient markets, and the public writ large. As FACT told the agency last year, the SEC should use its authority under the 1934 Securities and Exchange Act to promulgate a rulemaking requiring PCbCR utilizing best practices from the IRS, the GRI and other bodies. 

While additional pathways to implementing PCbCR remain open, leadership from the SEC in this moment could be particularly potent. Despite clarion calls for action by investors, FASB–an independent body that creates U.S. generally accepted accounting principles–has passed the buck on advancing PCbCR in a recent vote. Given that the SECis ultimately responsible for creating public accounting standards under current law, the SEC should act on FASB’s failure and see PCbCR through for the reasons stated above.

Additionally, the Senate could always take up the Disclosure of Tax Havens and Offshoring Act. The bill offers a prime, untapped opportunity for tax reformers, investor advocacy, and transparency champions to come together around common sense legislation. 

No matter which route U.S. regulators take, it’s becoming increasingly clear that the growing investor movement for PCbCR cannot be ignored.