CompaniesApr 29 2016

Baillie Gifford’s Slater warns ‘tax trumps profits’

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Baillie Gifford’s Slater warns ‘tax trumps profits’

Tom Slater, manager of the £390m Baillie Gifford American fund, said tech giants like Facebook and Amazon should choose a hit to profits over engaging in reputation-damaging tax avoidance.

Mr Slater, who also co-manages the £3.4bn Baillie Gifford’s Scottish Mortgage investment trust, said it would be good if international companies paid more tax in the jurisdictions they operate in.

His American fund currently has 7.6 per cent exposure to Amazon, and 5 per cent invested in Facebook.

Both companies, however, have recently come under fire for not paying their fair share of UK tax in the UK.

Facebook - which generates global profits of around £1bn a quarter - faced a public backlash when it was revealed it paid just £4,327 in corporation tax in the UK in 2014.

Speaking during a roundtable event in Edinburgh yesterday (28 April), Mr Slater argued tax avoidance “tarnishes the brand value”.

He said it is important companies are seen as “good corporate citizens”, particularly because these technology giants are “so dependent on the good-will of consumers”.

“I would rather companies be less profitable in the immediate term if they are paying more tax because it increases the value of the future cash flows.”

Facebook has since announced plans to pay out some £280m in share bonuses to staff to cut the amount of net profit on which it would have to pay corporation tax.

Mr Slater - who started co-managing the fund in November last year - said part of the problem is there is not necessarily a framework in place for dealing with international levels of profit.

He argued the tax treatment has in many ways been created by technology giants - because the infrastructure did not exist to deal with such huge global profits.

Over five years, the American fund has underperformed its benchmark slightly, delivering 12.5 per cent in that time against the S&P 500 Composite Index which has returned 13.3 per cent.

Addressing this, Mr Slater admitted the fund had a period of weak performance where it wasn’t where the team wanted it to be, but said one of the reasons he joined the American fund management team was part of a “conserted effort” to address this.

He added: “We feel we haven’t put as much resource behind our US efforts in the past as we want to going forward.”

katherine.denham@ft.com