UK fund houses question Alphabet tax

Four UK fund houses representing almost £1tn of assets have written to the board of Alphabet, Google’s parent company, to raise concerns about its tax arrangements.

The group, which owns billions
of dollars worth of shares in Alphabet, will add to pressure on the US technology giant after Indonesia’s regulator last week said it could hit the company with a bill for more than $400m in back taxes on advertising revenues booked outside the country.

Legal & General Investment Management, the UK’s largest fund house, the Local Authority Pension Fund Forum, which represents 71 public pension funds, Royal London Asset Management and Sarasin Partners, the investment boutique, signed the letter to Eric Schmidt, Alphabet’s chairman.

“Our point about tax was not just the obvious ‘are you avoiding it’, but also ‘have you really properly considered the implications for brand value and your license to operate in society’,” said a senior executive at one of the companies.

Alphabet has acknowledged the letter and will put it to the board, he said.

The LAPFF, Royal London and Sarasin Partners declined to comment. LGIM was not available for comment. Alphabet declined to comment.

Alphabet is one of a number of companies that have been caught in the crosshairs of an international debate about tax management after Starbucks, the coffee chain, last year struck a deal with the UK’s tax authority to pay a significant amount of tax on domestic profits for the first time in more than a decade.

This summer, the European Commission ordered the Irish government to claw back €13bn in taxes from Apple, the technology company, raising concerns among investors that the climate is shifting against companies with aggressive tax management policies. Japan has also ordered Apple to pay ¥12bn ($117m) in back taxes.

Sasja Beslik, head of responsible investments at Nordea Asset Management, the €300bn Nordic fund house, which invests in Alphabet and Apple, said it is becoming “quite clear” to companies and investors “that aggressive tax planning belongs to the past”.

“It will damage them in the long run much more than they think,” he said. “You can’t just say we create jobs, and just because we create jobs we can do anything we like. I don’t think this is the music that society wants to dance to any more.”

Some of Alphabet’s largest investors, including Vanguard, BlackRock, T Rowe Price, State Street, Fidelity Investments and Capital Group, declined to comment.

The commission’s tough stance on Apple has prompted an international controversy. Jack Lew, the US Treasury secretary, accused the EU of overstepping its mark.

Corporate America has rallied to Apple’s side, with 185 US chief executives writing to Angela Merkel, the German chancellor, to appeal to her to overturn the decision from Brussels.

Alex van der Velden, partner at Ownership Capital, a Dutch investment company that does not invest in Alphabet or Apple, said investors are underestimating the risks involved.

“Apple is likely to be just an opening gambit in a continuing race to extract higher corporate tax concessions,” he said.