How Big Oil Companies Rejected Tax Transparency Push by Activist Investors

In the recent move, some of the big oil companies rather shareholders rejected resolutions that sought to enhance tax transparency. These proposals were launched by the nonprofit organization Oxfam America in an effort to compel international giants such as Chevron, ExxonMobil, and ConocoPhillips to disclose numerical data on company earnings and tax payments by country. However, these and some other initiatives provoked strong and cogent opposition, thus putting the further development of corporate tax transparency into question. 

The Push for Transparency

Oxfam America, a nonprofit organization known for its advocacy on various global issues, purchased shares in these oil giants to engage in shareholder activism. Their goal was to influence corporate behavior towards greater transparency. Oxfam’s senior policy advisor for extractive industries transparency, Aubrey Menard, emphasized that detailed public reports on taxes and earnings are not only a best practice but also beneficial for businesses. Such transparency would allow shareholders and investors to ensure that corporate profits are genuine and not the result of profit-shifting to low-tax jurisdictions.

Shareholder Votes and Board Recommendations

On May 29, 2023, the shareholders of Chevron cast their vote over the proposal made by Oxfam. This brought an emphatic No to the proposal, with 85% of the votes conforming to the sentiments of the board of directors to turn down the proposal. Likewise, ExxonMobil and ConocoPhillips have been able to avert similar votes, as the letters from the Securities and Exchange Commission (SEC) highlighted to Law 360. 

In early June, another Texas-based oil company, Kosmos Energy Ltd., participated in a shareholder vote against the adoption of the proposed country-by-country reporting standards. While as many as 23 % of the votes were in favor of the proposal, the company’s board opposed it, stating that the introduction of new standards would not provide any extra information to the shareholders and might jeopardize the competitive position of the organization. 

Arguments for and Against Transparency

Supporters of the proposals believe that increased financial transparency can be used to address global tax injustice. So, for many years, advocates have been calling on multinationals to disclose more information on their activities to combat this problem. A 2021 report by the U.N.U.N. estimated that profit shifting will cost countries where profits are made between half a trillion to six hundred and fifty billion U.S. dollars every year. Ian Gary, executive director of the FACT Coalition, said that investors have a concern with their portfolio companies about where and how they are doing business and whether they are making profits by engaging in aggressive tax planning.

Conversely, companies like Chevron, ExxonMobil, and ConocoPhillips contend that they already provide sufficient tax details and comply with tax regulations in all jurisdictions. They argue that additional reporting would not significantly enhance transparency but could expose them to competitive disadvantages.

The Global Reporting Initiative Standards

Oxfam proposed that the corporations adopt the tax reporting standard set by the Global Reporting Initiative (GRI), an Amsterdam-based entity whose framework is widely recognized. Companies such as Ford, Samsung, and Shell already use GRI’s reporting model. Unlike the EU’s mandatory reporting framework, the GRI standard is voluntary, applies to all countries of operation, and covers more than just earnings, losses, and tax payments. It also includes details on tax governance, compliance, risk management, and stakeholder engagement.

The Broader Context

This push for transparency comes at a time when various regions are implementing more stringent reporting requirements. Last year, the European Union began enforcing mandatory global company reporting on profits and taxes paid in member states. This shift reflects a growing demand for greater corporate transparency.

In Australia, lawmakers attempted to pass regulations requiring companies with global revenues over AU$1 billion to disclose assets, taxes, and effective tax rates in each operating country. However, intense lobbying from multinational companies led to amendments aligning Australian regulations more closely with the EU’s.

Case Study: Chevron and the Australian Taxation Office

In a notable case, Chevron paid $654 million to the Australian Taxation Office in 2018 following a federal case over an inter-company loan dispute. Authorities accused Chevron of using a subsidiary in Delaware to borrow money at a low interest rate and lend it to an Australian subsidiary at a much higher rate, reducing taxes on profit through interest payment deductions.

Future Prospects

Similar tax reporting initiatives have been rejected by shareholders at other major corporations, such as Amazon and Microsoft, in recent years. In 2022, while the SEC initially prevented Amazon from blocking a shareholder resolution to adopt GRI standards, it allowed ConocoPhillips and Exxon to prevent votes on identical proposals by Oxfam. 
The rejection of tax transparency proposals by major oil companies underscores the ongoing tension between corporate interests and the push for greater financial disclosure. As advocacy groups continue to call for more robust reporting standards, the debate over transparency and its implications for business competitiveness and tax equity is likely to persist. The outcome of these initiatives will have significant implications for shareholders, policymakers, and the global fight against tax avoidance.