MSCI makes a stand against tax evading businesses
The agency Morgan Stanley will lower its ratings of businesses for evading taxes and maintaining opaque structures in order to not to comply their tax duties.
The rating agency Morgan Stanley Capital International (MSCI) has announced to penalize tax evader businesses or companies following aggressive tax policies when rating since January 2017.
This agency will specifically focus on businesses’ tax agreements. This measure has been taken as a response to growing public opinions and awareness against companies artificially minimizing the amount of taxes that they should pay, it is said, their tax obligations.
Besides, tax avoidance is also an interesting matter for investors: they consider that the avoidance of taxes by businesses is a risk that, although it is difficult to measure because it is an intangible risk, could endanger their investments. They are not willing to roll that dice.
A drop in a business’ investment rating means, not only a loss of corporate image and credibility but also an economic one. MSCI will lower down the qualification to those companies under investigation by the tax authorities or involved in judicial processes for tax crimes, to businesses paying a fewer amount of taxes than they should and, to those with opaque structures.
These kind of companies, mostly multinationals, are suffering from national tax authorities and international organizations’ pressure such as OECD, with the BEPS project, or the European Union. Giants like Apple, Amazon or McDonald’s are recently under Spanish, French, or even the European Commission tax office’s suspicion.
The crusade against these multinationals’ international tax avoidance has as one of its goals minimizing the so-called ‘tax gap’: the difference between what a company had paid in taxes and what it should have paid according to countries’ tax rates when profits are being produced. This tax gap’s figure is up to 8% only among the ten first worldwide multinationals.
It is calculated that most affected markets by this MSCI’s businesses’ rating criteria reshaping to be applied in 2017 are the technology and healthcare markets. Thus, these businesses should face more reputational risks if they insist on moving profits to minimize their taxes, among other tax avoidance measures.
To investment advisers, this initiative is positive, because it will help to design safer investment processes while investors will be more careful and they will bear in mind businesses’ tax status before investing.
But lowering the tax evader companies’ rating is not only a transparency exercise by rating agencies or institutions, nor a conducted measure against companies themselves, but an opportunity for the latter to develop their corporate social responsibility and to build aid, with the rest of the citizenship, to respectfully pay due taxes where wealth is being produced.
Del Canto Chambers’ Editorial Board