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The Panama Papers appear to be yet another scandal in the banking sector. The relevance for us as investors is that if banks are found to have engaged in illegal tax evasion practices, their reputation will be damaged and they can face big fines. This affects profitability and debt repayment capacity.
‘Besides analyzing current risks, we actively aim to improve companies’ tax accountability’Even if a company does not resort to illegal activities, aggressive tax policies in which multinational listed companies use legal structures to optimize their tax burden are increasingly viewed as a risk. For example, tax inversion - a company consistently pays taxes in other regimes than the ones in which its operational activities take place – can lead to reputational risks and negatively affect the relationship with relevant stakeholders. International tax harmonization could be a solution in this respect, but also improved transparency, for example by publishing tax policies and country by country reports, could allow companies to offer investors and other stakeholders a better insight into the risks associated with their tax policies.
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