Sustainability issues are increasingly shaping the tax and regulatory frameworks in which companies operate. This has implications for tax strategy, key figures and compliance.
Tax and legal issues are part of the sustainability framework
Sustainability is becoming increasingly important from a tax and legal perspective. The European Union, national legislators and other institutions such as the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) also use taxes and levies, grants and subsidies to steer sustainability goals. Consequently, when decision-makers consider business strategies with sustainability components—whether in response to regulatory changes or other factors—it's crucial to factor in tax and legal implications from the outset. This proactive approach helps identify optimal solutions.
Initiatives at both the European and national levels, along with efforts from reporting standard setters, are actively driving changes that have a direct impact on ESG. The diverse array of tax-related reporting requirements for various stakeholders encompasses several key frameworks, including the Corporate Sustainability Reporting Directive, the EU Taxonomy, GRI 207: Tax 2019, the OECD Guidelines for Multinational Enterprises, and the World Economic Forum's white paper, “Measuring Stakeholder Capitalism”, which envisions a Total Tax Contribution. GRI 207: Tax 2019, a non-binding reporting standard, remains relevant because EFRAG, as the standard setter for the ESRS framework, has determined in the Statement of Interoperability with GRI that the GRI framework is mandatory for all material topics for which there is no ESRS standard. This also applies to GRI 207: Tax 2019. It was published by the Global Reporting Initiative in December 2019. The GRI 207: Tax 2019 set forth international requirements for sustainability reporting in tax law for the first time.
At the national level, direct energy taxes can be mentioned, particularly the linking of energy tax incentives for industrial companies to energy efficiency measures. Germany does not currently impose a plastic tax; however, the UK and Italy implemented such taxes on 1st April 2022, and 1st January 2023, respectively. Another significant element of ESG is the Supply Chain Act, which took effect on 1st January 2023. This legislation imposes comprehensive due diligence obligations on companies.
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Tax burden as a sustainability factor
If companies want to be successful in the future, they will have to increasingly align their actions with sustainability goals. This gives rise to new tax and legal challenges, making the relevant regulatory frameworks increasingly important. They also gain an additional dimension; for instance, a company's energy tax burden can serve as an indicator of its ambition and success in achieving CO2 neutrality. In this context, companies should prioritise the analysis and assessment of environmental, climate, and other ESG-related opportunities and risks, and take appropriate action if necessary.
Sustainability as a locational factor
Sustainability is becoming an increasingly vital consideration for businesses when selecting a location. Companies now evaluate not just economic factors, but also environmental and social impacts. A sustainable location provides immediate advantages while also fostering resilience and ensuring the long-term success of the business.
Tax & sustainability dashboards
Our Tax & Sustainability Dashboards provide insightful visualisations of location decisions and their impact on individual economies and development trends, using a dataset aligned to the UN Sustainable Development Goals.
How to achieve a transformation towards a sustainable tax policy
What is the connection between sustainability and tax transparency? This question has gained prominence since December 2019, when the Global Reporting Initiative (GRI) introduced a new standard called “GRI 207: Tax 2019”, which provides comprehensive guidance on how to prepare tax transparency reports.
PwC study: International tax transparency in 2023
Companies are increasingly open to disclosing their tax strategies. Quantitative information, such as Public Country-by-Country Reporting (CbCR) and Total Tax Contribution, is anticipated to become common in future reporting periods, extending beyond just the early adopters. For the third consecutive year, PwC has released a study on tax transparency reporting, this time expanding its scope to an international level. The study highlights and analyses the differences specific to various countries and industries. The study includes 269 listed companies from Brazil, Germany, Ireland, Austria, Switzerland, Spain, South Africa, and the UK, from which over 40,000 individual data points have been compiled from their public reports. The study offers the most comprehensive overview to date of international tax transparency and sustainability reporting for 2023.
Download the study “Tax transparency and sustainability reporting in 2023” now
Tax strategy, Tax transparency & sustainability reporting
The connection between sustainability and the tax and legal aspects of companies is further reinforced by reporting requirements under the Corporate Sustainability Reporting Directive (CSRD) and the Supply Chain Act (LkSG). Sustainability efforts not only influence compliance, but also offer opportunities for tax optimisation. Additionally, tax incentives can serve as a crucial tool in encouraging companies to adopt sustainable practices. This applies to:
- energy and climate law issues,
- energy, VAT and custom duties,
- the identification and application for financing and funding,
- grants and subsidies,
- transfer pricing models, but also the requirements of CBAM and Pillar II.
Integrating sustainability goals into tax and legal strategies can enhance a company's reputation while also generating long-term financial benefits. Understanding these connections and leveraging them strategically is essential for ensuring holistic and sustainable corporate governance.
The Corporate Sustainability Reporting Directive (CSRD) and its consequences
Are you prepared for a new era in sustainability reporting? Currently, too few companies are fully aligning their portfolios, offerings, and capabilities with the opportunities that arise from a focus on sustainability. However, this could soon change. In the near future, an increasing number of CEOs are likely to examine the strategic and financial implications of sustainability more closely. This shift is driven by a new reporting standard in the European Union: the EU Corporate Sustainability Reporting Directive (CSRD). The CSRD has the potential to fundamentally reshape the agenda for value creation within companies.
Your contact
Prof. Dr. Arne Schnitger Partner, PwC Germany
arne.schnitger@pwc.com +49 151 12138039
Madeleine Kockrow Manager, PwC Germany
madeleine.kockrow@pwc.com +49 171 5306048
Matthias Walz Partner, PwC Germany
matthias.walz@pwc.com +49 170 8591849
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