Cisco asks shareholders to vote against global tax transparency

Amazon's already said no to country-by-country breakdown

Cisco has urged its shareholders to vote against a proposal asking for the company to publish a tax transparency report that breaks down where it pays its taxes on a country-by-country basis.

The resolution was proposed by three investors – including the Greater Manchester Pension Fund (GMPF), which has $41 billion (£38 billion) under management [PDF] – on 24 June, and asks that Cisco adopt the Global Reporting Initiative's (GRI) tax standard and publish a tax transparency report for shareholders.

What is the GRI tax standard?

According to the Amsterdam-headquartered Global Reporting Initiative, the tax rule is the one of the first global reporting standards that supports public disclosure of a company's business activities and tax payments on a country-by-country basis.

The idea is that multinationals make it clearer exactly how much – and, crucially, where – they pay their taxes across the world by forcing them to cough up tax receipts for every country where the company operates. Also, in some cases (we won't name names), where it purports to operate.

In some countries, a company might find a reduced income tax rate based on commitments it makes to job creation or capital investments, so lining up all of reported income from various geographies in one place – and the contrast in that reported income from year to year – would bring some clarity on why a company has set up its corporate structures the way it has. From an accountant's point of view, that would provide tax authorities with additional information on cross-border corporate structures that maybe they'd prefer they didn't have.

According to shareholder advisory group Pensions & Investment Research Consultants (Pirc) today, Cisco's letter recommending stockholders vote against it said it would "potentially have an adverse impact on our business."

Back in June, around the same time as the Cisco tax transparency request, a similar proposal – also coordinated by Pirc – was filed by Microsoft shareholders including Nordic asset management company Nordea Bank Abp and several Danish pension funds. Microsoft declined to comment when we asked if it plans to hold a vote on the proposal at its AGM on December 13.

Amazon, which has been repeatedly criticized for lack of transparency into its international tax dealings, including by none another than US president Joe Biden, was asked to do country-by-country reporting in March this year, but shareholders did not pass the resolution when the AGM came around in May [PDF].

This came after Amazon noted in a filing challenging the proposal that "the Company already provides extensive and detailed disclosure regarding its income tax contributions in accordance with generally accepted accounting principles in the United States in its publicly filed annual and quarterly reports to the Commission... By requesting additional reporting with specific types of disclosures relating to tax as mandated by GRI 207, the Proposal extends into subject matter that would not be appropriate for direct shareholder oversight."

GMPF's tax transparency proposal, co-signed by shareholders Etica Funds and the Missionary Oblates, is expected to be put to a vote of shareholders at Cisco's annual general meeting.

Cisco, by contrast to Amazon, whose lawyers reportedly tried and failed to get the SEC to exclude the issue from a vote at the May AGM, got props from one of the funds for actually putting it to a vote.

"Having seen Amazon try to throw out our proposal, it is pleasing to see Cisco accept the need to put this to a vote," Gerald Cooney, chair of the GMPF, said in a statement today. "Local government is so often at the forefront of budgetary restraints and cutbacks, with all manner of negative social consequences. It is of the utmost importance that companies like Cisco pay their fair share, contributing to the societies in which they operate and make their profits in. We look forward to having the opportunity to vote at Cisco's AGM later this year."

Aldo Bonati, stewardship and ESG networks manager at Etica Funds, said it had tried "to engage" with Cisco "on their tax practices with little success."

The company usually holds its AGM in the second week of December.

Cisco declined to comment.

The move comes after US SEC chair Gary Gensler made comments that were broadly supportive of a Financial Accounting Standards Board (FASB) plan for large multinationals to publicly report each country where they pay taxes and book profits.

Speaking at a hearing of the Senate Banking, Housing and Urban Affairs Committee earlier this month, Gensler indicated that the agency was looking to see if there was a need for increased reporting from global organizations.

"I think that would be a productive approach to have such disaggregation that FASB is considering right now," Gensler said at the committee hearing.

In an EU directive formally adopted late last year, multinational groups with a total consolidated revenue of €750 million ($721 million) must file a country-by-country report if they are EU parented or otherwise have EU subsidiaries or branches of a certain size. It is supposed to include information for every tax jurisdiction in which the group does business and besides revenues, profits, and tax, should also have data on numbers of employees, retained earnings and tangible assets in each place it trades. ®