Gilead Sciences – Corporate Tax Savings Allocation (2019)
WHEREAS: The passage of the Tax Cuts and Jobs Act (TCJA) permanently reduced the corporate tax rate from 35 percent to 21 percent and eliminated provisions requiring companies pay taxes on money earned abroad. With these changes it is estimated that America’s largest corporations by market capitalization will receive a windfall of $150 billion. One of the overarching goals of the legislation is to boost economic growth and companies’ long-term investment in the American economy, however without more detailed information it is unclear whether a company’s intended use of the assets aligns with this goal.
To date, Gilead has not provided adequate information indicating how the company plans to use tax savings gained as a result of the TCJA.
We believe investors should have ample information regarding how changes to the tax law will impact a company’s long-term strategy. Larry Fink, CEO of BlackRock recently stated:
“Companies have not been explicit enough about their long-term strategies. In the United States, for example, companies should explain to investors how the significant changes to tax law fit into their long-term strategy. What will you do with increased after-tax cash flow, and how will you use it to create long-term value? This is a particularly critical moment for companies to explain their long-term plans to investors.”
The tax cuts present Gilead with an opportunity to strengthen the bottom line, invest in workers, benefits, jobs, communities, capital investments, R&D, and make acquisitions. Without any specificity or discussion of these investments, investors cannot understand how the tax law will impact a company’s long-term strategy.
Motivated by the tax changes, industry peer Amgen announced plans to open a biologics plant adding 300 new jobs. Dozens of companies have also shared how they will spend the tax savings. Boeing will use the funds on workforce development, infrastructure enhancement, and corporate giving. Target plans to use 100 percent of its tax savings on workers.
The focus on what companies do with tax benefits is growing during a time when wage growth remains stagnant and income inequality has widened.
In a poll, when Americans were asked what percentage of corporate tax savings should be allocated to seven categories, responses indicated that fifty-two percent thought tax savings should go towards worker pay and/or benefits, creating new jobs, and giving back to communities. Passing savings onto shareholders was the lowest priority at just 10 percent.
Earlier this year Illinois Treasurer Frerichs and JUST Capital issued a survey to S&P 100 companies with a series of questions regarding planned allocation of corporate tax savings. Gilead declined to complete the survey.
RESOLVED: Shareholders request the board of directors to issue a report describing how the company plans to allocate tax savings as a result of the TCJA. This report should be prepared at reasonable cost, in a reasonable time, and omit proprietary information.