Edwin Visser (PwC): ‘Taxes a crucial part of the ESG’

Link tax transparency and reporting to values, standards and ESG ambitions as quickly as possible. It contributes to market confidence and demonstrates a commitment to sustainability and social responsibility, “said Edwin Visser, EMEA Tax Policy Manager at PwC Holland. He lists four points for attention.

The changing gaze of investors

Business and tax: The days when it was about following the rules are over. A company’s tax strategy provides opportunities to show how the company sees its place in society and the responsibilities that come with it. It’s time for transparency and tax reporting with a focus on ESG (environment, social, governance). Taxes are an important contribution from a company to society.

Tax reporting through an ESG lens can tell a more holistic and relevant story about a company’s purpose, building trust. Edwin Visser sees a clear shift in the market. “Investors are increasingly looking at how companies manage their tax affairs and see this as an indication of how they are tackling other aspects of the ESG agenda.”

From transparency and trust to value

A focus on ESG in reporting can increase transparency and influence the way tax information is viewed in three ways. Visser: ‘Firstly, the scope of the report is extended to non-financial factors, such as CO2 emissions and diversity in the workplace.’

Second, an ESG view underlines the link between governance and transparency. ‘Transparency gives trust and trust gives value,’ explains Visser.

Finally, an ESG-based approach to tax reporting is more than just publishing data. “It’s about having a tax strategy and a proper history around that strategy. Both the strategy and the narrative must be fully aligned with the company’s overall values. ‘

Comprehensive ESG reporting makes it possible to compare business results in many areas. With non-financial reporting standards on the way, stakeholders are getting more and more information in addition to information about the company’s financial results. Information that is (critically) assessed. How targeted is this business? How does this organization relate to its social responsibility?

The pressure for more openness is increasing

What will the future bring? Reporting requirements and new, mandatory and voluntary standards. The pressure on companies, especially multinationals – from governments, investors, regulators, the media, civil society and the public – to be more open about the taxes they pay has been increasing for years, the English version of this article, which takes take a closer look at this development over the years.

In 2015, the Organization for Economic Co-operation and Development (OECD) and the G20 countries formally adopted a form of country-by-country reporting (CbCR) as part of the so-called BEPS (‘Base erosion and profit shifting’) initiative. ) from the OECD.

A new EU directive, which entered into force in December 2021, makes a form of public country-by-country reporting mandatory for many companies operating in the EU. This is unlikely to be the last regulation to require more fiscal transparency.

Good storytelling and strategy ESG tax crucial

Taxes are complicated, easily misunderstood and sometimes overwhelming. For example, in OECD member countries alone, there are already more than a thousand environmental taxes, and that list is constantly changing. Due to all the facets affecting the tax strategy, there is no uniform approach and it is necessary to consider the chosen approach carefully.

Precisely for this reason, a weighted narrative that explains why this tax strategy was chosen is so important. ‘Lack of a good story can have far-reaching consequences,’ Visser explains.

‘Suppose a company invests in new, environmentally friendly technology that leads to lower tax payments through legally created tax benefits. In the absence of a narrative and a clear strategy, that company can come into the public eye for tax payments instead of being recognized for sustainable investment, ”he explains.

Four points for attention for an ESG-driven future

To ensure that reporting is truly informative, companies need to determine which information, both qualitative and quantitative, is most relevant to their stakeholders. Gathering, verifying and understanding this information takes time and effort.

Companies that start with this on time have a huge advantage. If you want to build a complete history where the tax strategy is linked to values ​​and ESG ambitions, you should take four points into consideration:

1. Understand your own facts

Make sure that the company’s tax position is clear not only from the shareholders’ point of view, but also from the investors who focus on ESG. Employees, civil society, tax authorities and other stakeholders demand more than consolidated accounts.

This means that the board of directors, the tax director and the management team must understand the tax strategy and approach. This requires commitment of time and resources. Especially because the tax rules are constantly changing.

2. Collaborate and consult

Adapting the tax strategy to the broader business strategy and integrating the two is crucial. Cooperation between all departments is an important prerequisite for this. The ESG revolution is changing the way companies work across all industries. This leads to changes in the work area, the chain, in the acquisition and sale of assets or business units.

Almost all business decisions have a tax impact. This impact becomes even more visible in the more comprehensive tax information that occupies an increasingly prominent place in ESG reporting. By considering tax effects early, companies can better understand and develop the tax history associated with such long-term transformations.

3. Communicate clearly

Tax information is often read by people who are unfamiliar with the complexities of taxes and compliance. Taking the time to develop a clear tax history can prevent misunderstandings and build trust. Transparency is crucial. So think carefully about how your business emerges when tax decisions are viewed from an ESG perspective.

4. Set benchmarks and look ahead

How is your company compared to colleagues and competitors? And what does that mean for your own vision of tax reporting? Chances are that only a few companies want to become frontrunners in reporting. However, even fewer companies probably want to be among the laggards.

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