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In spite of the above challenges associated with the PACTA analysis, ATP wants to maintain a high level of transparency and is therefore publishing the results of the PACTA tool on its website atp.dk/responsibility under ‘Climate’. The analy- sis is based on a manual extract of ATP’s portfolio at 31 December 2018. As a... |
Responsibility in unlisted investments |
35. |
Responsibility 2018. |
Tax is a key parameter in investments, especially when it comes to cross-border investments. The globalised economy has created impressive worldwide growth and prosperity, but this has also resulted in complex legal structures that allow taxable returns and earnings to be moved across borders. |
In many cases, this is a fully legitimate practice aimed at preventing double taxation, but in other cases it collides with the intention of the tax laws. National tax laws and regulations are not yet adequately adapted to a globalised world, and as a result aggressive tax planning has become a global challenge. |
ATP has decided to go further than the law prescribes to counter aggressive tax planning. |
In its tax policy on unlisted investments, ATP sets out strict requirements to ensure that ATP pays the correct amount of tax – neither too much, nor too little. The aim is to throw ATP’s weight into the fight against aggressive tax planning, while also retaining some degree of realism, since ATP does not always have a... |
In ATP’s experience, it is not easy to get everyone on board with ATP’s hard stance against aggressive tax planning. In some cases, this has meant that ATP has had to reject certain investments. On the other hand, ATP has also encountered willingness to contribute to ensuring good tax practices and increased transparen... |
As an investor, ATP has no mandate to oversee co-investors and external managers – this is a job for the proper authorities. Though, ATP can work to ensure that the money invested by ATP is invested within the framework of ATP’s tax policy, and that the correct amount of tax is paid on the Danes’ contributions to ATP. ... |
Consequently, ATP carries out regular spot checks of the structures put in place by ATP’s external managers. The aim of the spot checks is to provide assurance that the investments made continue to comply with ATP’s tax policy. |
PREDOMINANTLY POSITIVE EXPERIENCE WITH THE IMPLEMENTATION OF ATP’S TAX POLICY. |
For all new unlisted direct investments, ATP has engaged in a dialogue on the tax structure to be used and has managed to impact structures that were not in line with ATP’s tax policy. |
For example, in one case ATP managed to change the company and tax structure of an investment from an original setup where an intermediate country had been interposed between the location where the investment was made and Denmark, to a structure where ATP invested directly in the country – all with aim of preventing tr... |
ATP has also seen successes in its dialogue with funds: In one case, ATP successfully transferred the jurisdiction of an entire fund from one country to another. |
ATP has also imposed investment restrictions and disclosure obligations on all new funds ATP invests in. |
Furthermore, ATP has conducted spot checks in four of the funds ATP has invested in. The spot checks have provided ATP with insight into the structures used by the funds, which have not led to comments in relation to ATP’s tax policy. |
Finally, ATP has found that the funds are generally sympathetic to ATP’s desire for dialogue and investment structures as well as ATP’s negative list. |
ONGOING CHALLENGES. |
Particularly in the case of fund investments, such as private equity funds, where ATP invests together with other investors, ATP generally has less bargaining power, making it more difficult to get funds to commit to ATP’s tax policy. US funds, in particular, have been sceptical in their dialogue with ATP, as they are ... |
Tax |
36. |
Responsibility 2018 they can and cannot do. On the other hand, ATP has found Danish and European funds to be more cooperative. |
In certain concrete cases, the tax policy has led to ATP rejecting investments that were inconsistent with ATP’s tax policy, and where ATP’s external managers were not willing to modify the structures. |
In one case, the problem was that a fund wanted to move a large share of a company’s earnings to Bermuda to avoid paying tax, which was unacceptable to ATP. In another case, a US fund maintained its plans to use the structures for their underlying portfolio companies whose substance and form were not compatible with AT... |
LEARNINGS FROM THE YEAR’S PRACTICES PROMPTED REVISION OF ATP’S TAX POLICY BY THE SUPERVISORY BOARD. |
During the year, ATP learned that a dialogue with the at an early stage in the investment process is important to align expectations for the tax planning and structure of the investment. |
ATP has found that the increased focus on tax has given ATP an even deeper understanding of the risk aspects of potential investments – both commercially and in terms of tax. |
A key learning during the year was that the dialogue as well as negotiations with potential external managers might be. |
ATP cannot solve the world’s tax problems on its own. |
In its work on tax in unlisted investments, ATP has put a new topic on the agenda, which is quite new to many external managers. ATP is only one among many investors, so in order to achieve a greater impact it is necessary to get more investors involved in the tax agenda. |
In 2018, ATP’s actions in the tax area drew considerable attention from investors, consultants and the general public alike. |
In Denmark, ATP entered into a dialogue with other pension funds and the funds’ organisation DVCA. It is ATP’s experience that all these players are interested in ATP’s work and experience with the tax policy and are considering how they can make a positive contribution to this important agenda. |
ATP’s tax policy has also been met with considerable public interest and ATP has attended conferences in the Danish Parliament, at the People’s Meeting on the Danish island of Bornholm and in small forums to share its experience in this area. |
Internationally, ATP has also experienced some interest from peers and ATP has actively participated in roundtable discussions at several top international tax conferences in order to inspire other investors to put tax on the agenda. |
Although ATP’s tax policy only applies to unlisted investments, ATP also continued its international collaboration through the PRI organisation in order to increase awareness of the problems of aggressive tax planning among large multinational corporations, particularly in the tech industry. |
While there is very significant national interest in ATP’s work in this area, ATP believes that it will require a sustained effort to increase awareness among international investors and investment funds of the risks and problems that aggressive tax planning poses to investors and society at large. |
37. |
Responsibility 2018 hampered by the fact that ATP’s tax policy in some respects was not clear and concrete enough for ATP’s counterparties to clearly understand what ATP demands from them. |
Thus, in late 2018, ATP’s Supervisory Board decided to undertake a review of ATP’s tax policy in order to clarify and specify ATP’s tax requirements in connection with unlisted investments. |
It is ATP’s hope that a more detailed tax policy will provide even better opportunities for ATP to promote its progressive tax policy in 2019. |
CASE: Critical dialogue with Macquarie. |
In autumn 2018, several European media uncovered a number of cases involving major alleged dividend tax fraud across large parts of Europe, and the Australian Macquarie Bank was mentioned as a participant in the tax speculation setup. |
In spring 2018, ATP invested in TDC through a consortium with two other Danish pension providers (PFA and PKA) and MIRA (Macquarie Infrastructure and Real Assets). MIRA is a entity of Macquarie Group, which is separate from Macquarie Bank. MIRA manages infrastructure investments for a wide range of international pensio... |
In light of the new information about Macquarie Bank, ATP, along with the Danish pension providers PFA and PKA, entered into a critical dialogue with the Macquarie Group in an effort to understand the extent of the company’s involvement in trades motivated by dividend tax refunds. |
Macquarie has announced that the bank has participated in so-called CumEx trades in Germany on three occasions. There are currently no outstanding amounts in any of the three cases, as all dividend tax refunds have been paid back to the German tax authorities. Macquarie has stated that their Danish company has not been... |
A critical dialogue with Macquarie is ongoing, as ATP awaits more detailed documentation from Macquarie, to the extent such can be procured. ATP has demanded that Macquarie implement an adequate self-cleaning process, including documentation that any compensation ordered has been granted, documentation for active coope... |
The TDC consortium has entered into an agreement under which all dividend and interest rate payments to the owners must, de facto, be approved by the three Danish pension providers. When dividends are paid to the owners, the consortium’s holding company generally withholds the full amount of Danish withholding tax, unl... |
38. |
Responsibility 2018. |
One of the focus areas for 2018 was the development and expansion of strong ESG processes for all asset classes. |
For ATP, integrating ESG in real estate investments and direct investments is nothing new. ESG has been part of the investment process for a number of years. However, ATP has found that there is a need for developing and standardising its processes with an increased focus on data and documentation. |
ATP invests in private equity funds through ATP Private Equity Partners. ESG did not use to be an integral part of the investment process, but in 2018 ATP devoted considerable resources to developing and applying integrated investment processes in connection with new investments. |
The work on standardising the ESG processes was carried out with due regard for the diverse nature of the investment processes that are used in alternative investment. ATP’s focus was on tailoring the processes to the individual investment processes, both in terms of direct investments and fund investments in real esta... |
ESG can be incorporated at different stages before and after an investment is made. In 2018, the standardisation work focused particularly on strengthening the ESG processes that precede ATP’s investment decisions – a process that ATP refers to as ESG due diligence. |
STANDARDISATION AND DEVELOPMENT OF ESG DUE DILIGENCE PROCESSES. |
The purpose of ESG due diligence is first and foremost to gather information and knowledge about relevant ESG issues etc. before ATP decides whether to go ahead with a given investment. |
If the ESG due diligence process identifies problematic ESG issues, ATP may decide not to go ahead with the investment. A potential investment may also be hampered by commercial, legal and tax problems. |
In other cases, ATP may instead exercise active capital ownership, demanding that ESG issues be dealt with in a specified manner if ATP is to invest in the specific asset or fund. |
Finally, the ESG due diligence process may also identify issues that ATP finds should be explored further in close cooperation with the asset or the fund. |
In 2019, closer integration between the ESG process that precedes any new alternative investment by ATP and the ESG efforts undertaken by ATP as owner of the asset (referred to by ATP as ESG asset management) will be the focus of ATP’s continued build-out of the ESG area in relation to alternative investments. |
BETTER DATA REMAINS A KEY FOCUS AREA. |
The lack of adequate ESG data is a challenge to ATP’s ESG integration in alternative investments and complicates the ESG due diligence process. |
ESG question database An important part of the standardisation of ESG processes in alternative investments and efficient ESG due diligence is the ability to gather adequate information that can help you to assess the ESG aspects of a potential new investment. ATP is working to improve the quality of relevant ESG inform... |
ESG information is often not immediately accessible when ATP is considering a new alternative investment. Furthermore, the process preceding ATP’s decision whether to buy the asset or not is often short. |
The question database allows ATP to quickly request (more) information about the aspects that ATP considers to be particularly important to its ability to examine ESG issues in the potential investment. |
ESG integration in alternative investments |
39. |
Responsibility 2018. |
G |
Insight into the process concerning private equity funds. |
ESG due diligence within private equity funds is performed of the prospective fund for investment. Due diligence is performed prior to entering into an investment agreement, and before the fund makes any investments. ATP makes a commitment to invest DKK X million over a given investment period. In ESG due diligence, fo... |
ATP has drawn up an ESG questionnaire, which is sent to all new prospective funds. The aim is to establish the fund’s views on ESG, and how to ensure that the companies we invest in are focusing on relevant ESG issues. In the absence of such focus, initiatives will be launched to rectify the situation. Background infor... |
In addition to the questionnaire, ATP also engages in a dialogue with the fund to learn more and obtain more information. In its ESG assessment of the fund, ATP also incorporates knowledge of the environment in which the fund operates, for example sectors and countries, climate-related matters and other relevant matter... |
The figure illustrates the ESG due diligence process in ATP Private Equity Partners. The ESG process is tailored to the highly developed investment process that has been used for several years. This ensures that ESG is part of the overall due diligence that precedes an investment, where ESG is included as a parameter i... |
Fund X in the market. |
Decision on due diligence. |
Decision on due diligence. |
Analysis. |
Investment due diligence. |
Final approval of investment. |
Investment track. |
ESG track. |
ESG DD Questionnaire part of PEP DD Questionnaire (DDQ) |
ESG part of investment memo. |
ESG requirements included in final agreement. |
Sector/ geography Data/DDQ Visit/telephone Companies in previous funds |
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