PGGM: strengthening fiscal integrity

The levying of taxes and the responsibility of the corporate taxpayer therein is in recent years a topic frequently discussed in the international societal debate. This debate is fed by publicity surrounding leaked data – most recently the ‘Paradise Papers’ – pointing out clearly time after time to the regular taxpayer that parties use opaque tax practices to avoid paying their fair share of taxes.

The topic now figures prominently on the agenda of the G20 nations, the EU and the OECD. We see as a consequence new legislative developments to further constrain currently available (legal) tax avoidance opportunities and a strong need for greater transparency in the area of tax.

PGGM, which manages investments worth 218 billion euros on behalf of clients like PFZW and other Dutch pension funds, wants to be transparent about its fiscal behaviour. We strive to obtaining optimum investment returns to realise the pension ambition of our clients, however we wish to do so in a tax-responsible manner.

Our views on sustainable and responsible tax behaviour are firmly integrated in the policies that we as a responsible investor adhere to. We look for ways to generate returns while at the same contributing towards a sustainable world. In such a world pension capital can continue to yield long-term returns.

Part of that sustainable world involves having a sound taxation climate. There has been a shift in views on this subject in recent years. In this context, PGGM and its clients have also looked more closely at own behaviour and at that of the investment chain we’re part of.

At the same time, one should remember that pension funds operate in a complex international environment where investment structures are commonly used. Usually, PGGM has a minority position and are we dealing with other co-investors or fund managers such as with our private investments in real estate, infrastructure and participations in externally managed investment funds.

Regardless the investment category, paramount is that we do not operate on the edge of the law. For us, fiscal aspects are not driving our investment strategy nor our investment propositions. We therefore exercise caution as far as fiscal structures are concerned and we seek to invest directly as much as possible, like in real estate and infrastructure

Not every tax structuring however is controversial. Pension funds are exempt from tax in the Netherlands, and the pension income is taxed in the hands of the pension beneficiaries, consequently the levying of foreign taxes could result in double taxation for the pension beneficiaries. This we aim to prevent in a responsible manner, whereby sometimes fiscal structuring is needed.

The core of our policy is that the fiscal aspects of investments should be understandable, controllable, and explainable, double taxation for pension funds and their participants should be avoided as much as possible and greater transparency on tax matters is necessary.

We already apply our policy to new investments. We are also taking a close look at our existing portfolio, although we are aware that converting investment structures can prove difficult. For example, where we hold a minority position in an investment.

As part of our policy we therefore also actively approach our investment partners, such as external fund managers whom we have entrusted with capital management, on how they approach tax. For years we ask our investment partners for example how they deal with the CO2 footprint of the investments made, and as part of sustainable investment we now also like to gain an even better understanding of the tax footprint. This we explain in our Sustainable Tax position paper.

Besides our own tax behavior we also find it important to contribute to the social debate by addressing tax matters affecting pension funds and participants. In this regard we continue to take part in dialogue with the OECD, the European Commission and other international collaboration bodies to contribute to the development of a uniform, simple, and fair fiscal system for pension investing.

This process of making the (international) tax landscape more ’sustainable’ continues to move at a rapid pace and is, in our view, desirable and irreversible.