Tax might not be the first sustainability factor which comes to mind. However, policymakers in Switzerland and worldwide exert a push-and-pull influence through tax incentives, investment relief and funding for sustainable businesses on the one hand, and green taxes (including taxes on energy, transport, pollution and resources) and carbon pricing measures on the other.
Moreover, tax touches many of the United Nations Sustainable Development Goals ("SDGs") as tax revenues have a lasting impact on the prosperity of communities. How much tax companies pay, where they pay it and how they manage their tax affairs is increasingly valued as an ESG or sustainability measure. This is because the tax revenues available to governments and societies are a prerequisite for this debate to take place at all.
Companies need to evaluate potential environmental tax exposures and opportunities and assess their strategy with respect to tax transparency. KPMG’s experts can guide you on this journey with best-practice insights and technological solutions to ensure that taxes are properly considered in your ESG strategy.
How are tax and ESG connected?
Taxes affect all three areas:
Environmental aspects (E) include the introduction of environmental taxes, including carbon taxes, that are levied on companies based on their greenhouse gas emissions. The aim is to encourage companies to reduce their carbon footprint and transition towards cleaner and more sustainable practices.
The social dimension (S) that focuses on the tax footprint of companies requires transparency in tax reporting and increased social awareness of tax
Governance aspects (G) relate to sustainable tax control frameworks and appropriate board level attention with respect to tax matters.
The “E” – Environmental taxes
Environmental taxes (green taxes) are used as a flexible economic instrument to raise tax revenues and enforce the “polluter pays” principle.
With the introduction of the Carbon Border Adjustment Mechanism (CBAM) in the EU and sustainability regulations on products such as plastic and packaging, governments in Switzerland and across the globe have made important progress in introducing climate policies that feature a mix of environmental taxes, in particular relating to carbon taxes.
Moreover, many governments are increasing the amount of tax incentives and other subsidies and grants available to influence behaviors that are impacting the environment and contributing to climate change.
Companies must not only remain compliant but should also take advantage of the accompanying incentives and grants available to them.
Decarbonization
Through the introduction of new carbon taxes and measures to control carbon leakage, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), the review of excise tax rates and the phase-out of tax exemptions for sectors with high pollution as well as the reform of Emission Trading Systems (ETS).
Circular Economy
To promote the move toward a product circularity system and the principles of reduce, re-use and recycle by means of regulations including taxes on energy, resources, plastics and packaging.
Sustainable Development
Increasing funding of green investments for specific sectors, tax incentives or tax credit benefits with the aim to shift to more sustainable business practices.
What role do tax teams play in the implementation of ESG?
The tax teams play an important role in the implementation of ESG. Their tasks include:
- Ensuring that full advantage is taken of available reliefs (“carrots”) to secure funding of the transition and drive value-added.
- Ensuring that the cost of environmental taxes on the existing business model is understood.
- Understanding the tax aspects of changing business models and updated and optimized supply and value chains.
- Compliance with evolving environmental tax regimes, including development of effective TOM and governance.
- Assessing whether the tax governance framework and tax processes meet the expectations of the various stakeholders – even when they are publicly scrutinized.
- Knowing which mandatory or optional standards apply (BEPS Pillar 2, public EU CbCR, GRI Framework etc.).
- Evaluating whether the required data, i.e., the data the company wants or needs to disclose, can be extracted from current systems.
- Conducting a risk assessment to consider what actions need to be taken and the context in which this data should be viewed to manage potential reputational risks. Also considering whether an independent audit/assurance could/should be obtained for some or all of the data to be reported.
Our expertise in ESG in tax
Drawing on our wide range of expertise, we help your company comply with new tax regulations, incorporate taxes into your ESG strategy and complement your ESG goals:
- ESG Tax Strategy: offering tax specific ESG workshops to collaborate effectively on key ESG issues and thereby accelerate the fiscal ESG strategy and its added value.
- Tax Governance: designing tax governance frameworks and preparing tax transparency or total tax contribution reports to manage tax and reputational risks.
- Sustainable Supply Chain: determining how taxes can be incorporated into supply chain strategies and assessing potential tax risks and opportunities.
- Incentives, Grants & Reliefs: identifying and applying for globally available tax reliefs, grants and incentives in order to finance ESG initiatives and free up funds.
- Environmental taxes: advising on the financial impact of environmental taxes including compliance and reporting, impact assessment, overpayment claims and dispute resolution.
- Carbon Trading: assisting in the understanding and management of taxes and the broader implications of setting up a carbon trading function.
- Tax Transparency Roadmap: providing an outside perspective on a company’s tax transparency position and sharing insights based on experiences with clients, industry representatives and investors as well as designing tax transparency roadmaps.
- Tax Impact Reporting: supporting your tax department, informing stakeholders about your approach to taxation and helping compile information on your tax footprint using data-driven methodologies.
- EU Public CbCR assessing your current CbCR profile and its associated risks, providing guidance and suggesting action items in the preparation of the CbCR report.
Your benefits
Our team of ESG tax experts will help you pursue strategic and value-based tax planning to drive sustainable business models and value chains in line with your long-term ESG strategy.
Our aim is to make you stay on top of environmental tax as well as tax transparency reporting regulations and initiatives while embracing opportunities and tax incentives deriving from ESG trends in tax.
Contact our ESG experts
Contact our subject matter experts not only to comply with green taxes, carbon pricing schemes and tax transparency standards in Switzerland and globally, but also to ensure taxes are considered as part of a holistic long-term ESG strategy in a multi-disciplinary way.
The “S&G” – good governance and being tax transparent
ESG developments coinciding with BEPS 2.0 result in tax control frameworks and tax processes becoming even more important. Having a clearly defined tax governance framework is key to supporting a company’s ESG journey and sustainability strategy.
Furthermore, there is not just the expectation that companies have a sound tax governance framework and pay taxes according to the law, there is also the expectation that companies are transparent on this. Over the last decade, numerous initiatives and standards have been initiated and came or are coming into force. As a result, the tax transparency landscape is becoming increasingly complex and the debate is gaining significant momentum.
There are two main drivers for the tax transparency debate: regulatory initiatives and market forces.