Sustainable Tax · Engaging in responsible tax practices ... Responsible tax planning approach Tax transparency approach Roles, responsibilities and accountability, at board and supervisory

Creating a sustainable tax approach in

times of fundamental change

Sustainable Tax

Webcast series 'State of Tax’

Presentation by Dave Reubzaet, Evita van der Aar-Melger

Guest presenters: Vaishnavi Ravishankar (Principles for

Responsible Investment), Lex Huis in het Veld (PwC)

20 August 2020

PwC

Sustainable Tax August 2020

The pandemic has only served to “supercharge” the need to achieve the SDGs. I haven’t seen since WWII this urgent need to align government policies with private sector actors and investors.

Jay Collins

Chair of the Global Investors for Sustainable

Development report committee

Taxes will play a role in shaping the “new normal”. Along with affecting equality, fundamental shifts in social behaviors make the aftermath of the crisis a good moment to “green” our tax systems.

Platform for Collaboration on Tax

(OECD - UN - WBG)

““

PwC

Sustainable Tax 20 August 2020

1. Developments impacting tax

2. Drivers sustainable tax

3. Corporate governance

4. Sustainable development

5. UN PRI on tax

6. What this means for tax

7. Q&A and wrap up

3

The next 90 mins

Drivers

Developments

&

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5

Versie 2 - met foto, of

illustratie in de bannerDevelopments impacting tax

02

Sustainable Development Goals,

ESG, Sustainable Finance

03Corporate Governance Trends

Purpose - Stakeholders model - Long

term value creation - Sustainable

integration in society

New tax environment

International tax

system overhaul

Modernisation - Prevention of tax

avoidance - Taxing of digital economy

04Digitisation of Tax

Data availability, data management

and analysis, use of technology

01Focus on sustainable

development

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illustratie in de bannerNew tax environment

Governments

Tax authorities

Politicians

Intra

governmental

organisations

(UN, OECD)

Taxpayers:

organisations

and individuals

NGO’s

(Institutional)

investors

Universities

Industry

associations

Tax advisors

Standard

setters

NEW TAX

ENVIRONMENT

Requires:

● Systems view

● Constructive action

from all stakeholders

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Focus of this webcast

7

● Corporate governance

● Sustainable development,

SDGs and ESG

And what this means for taxpayers

(organizations, incl. investors)

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8

Drivers for sustainable tax

Organizational (internal)

• Organizational purpose

• Stakeholder dialogue

• Sustainability and SDG agenda

• (Reputational) risk management

• License to operate

• Transparency / availability of data

Country specific

• Corporate Governance Codes

• Systematic Integrity Risk Analysis

• Country specific regulations,

codes

of conduct, etc.

International

• COVID-19 / Bailout conditions

• Corporate governance trends

• OECD Guidelines for MNEs

• EU Commission CSR strategy

• UN Global Compact and SDGs

• EU AML Directive

• UN Principles for Responsible Investment

• EU Sustainable Finance package

• GRI tax standard

• WEF - IBC ESG metrics

• Industry tax codes of conduct

• DAC6 - Mandatory Disclosure Regime

• (Public) CbCR

• Tax transparency regulations and initiatives

• Good tax governance regulations

and initiatives

• B Team principles

• US Business Roundtable

• European Investment Fund

• NGO reports on tax behaviour

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illustratie in de banner

If we look through the details,what is expected?

Sustainable

approach to tax

Tax strategy1 Implement and

control2 Tax transparency

reporting3

Stakeholder input All statements in scope Accountability to

stakeholders (also

understandable for non

tax professionals)Aligned with sustainability

commitments

Responsible tax planning

Robust governance

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5. UN PRI on tax


7. Q&A and wrap up

10

Agenda

governanceCorporate

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International trends

● Emphasis on organisational purpose

● Shift to stakeholders model

● Long term value creation

● Sustainable integration in society

● ESG and Sustainable Finance

Corporate governance

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Corporate tax governance

Is about management of tax in the broadest sense and consists of:

Especially relevant in light of:

● Transition from ‘tell me’ to ‘show me’

● Mentioned governance trends

● Managing the many changes impacting the tax environment

1 2 3 4

Tax strategy Roles and

responsibilities

Tax risk

Management

Tax (transparency)

reporting and assurance

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5. UN PRI on tax


7. Q&A and wrap up

14

Agenda

development

Sustainable

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Growing attention for sustainability

● Stakeholders, regulations and frameworks

require sustainable actions

● Organizations are aligning their business (strategy)

with their sustainability ambitions

● Sustainability ambitions, actions and reporting

are linked to the SDGs and ESG topics

● Tax is part of sustainable development as needed for funding

of public goods and services, the SDGs, reducing social

inequality, funding of the sustainable transition and more

Sustainable development

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Sustainable developmentSDGs

● SDGs to achieve 2030 Agenda for Sustainable Development

● Call for action for all (governments, business, individuals)● Taxation is fundamental to achieve SDGs● UN Global Compact / GRI: business actions

○ Paying your “fair” share of tax

○ Prevent using tax avoidance mechanisms

○ Engaging in responsible tax practices

● Organizations are integrating SDGs in their business strategy and

considering their tax behavior, including contribution in payments and in kind

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Sustainable developmentESG

● Environment, Social, Governance, tax is part

of all categories ● With specific tax criteria such as tax strategy,

governance and control, board responsibility,

CbCR and more● Although no universal standard available yet,

the key ESG tax criteria are roughly the same

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✓ ✓ ✓X ✓

✓ ✓ ✓X X

X ✓ ✓X X

19



Sustainable developmentSustainable finance (1/3)

Transition path

and

Accountability

Avoid harm and

mitigate ESG risks

Benefit all

stakeholders

Primarily contribute

to solutions

Address societal

challenges by

supporting non-

commercially

viable models

Philanthropy

Address societal

challenges that

generate

competitive

financial returns

for investors

Impact driven

Adopt

progressive ESG

practices that are

expected to

enhance value

Sustainable

Mitigate risky

ESG practices,

often in order to

protect value

Responsible

Limited or no

regard for ESG

practices or

societal impact

Traditional

Source: Bridges Impact+ and the Impact management process

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● To achieve the EU’s climate and energy targets in

2030, an annual gap of EUR 180 billion must be closed

● The EU expects a more resilient and competitive

economy due to green changes and more efficient

production processes

1.Classification system/Taxonomy

2.Standards and labels

3.Promoting investment

4.Financial advice

5.Benchmarks

● Limiting the financial impact of environmental

and social risks

● The financial sector should adequately take

environmental, governance and social risks

into account in the risk analysis

6. Research and ratings

7. Obligations of institutional investors

8. Prudential requirements

● Allowing an appropriate assessment of long-term

value creation

● Steering companies in a more sustainable and

long-term direction

9. Research and ratings

10. Obligations of institutional investors

Realignment of capital flows Integration in risk management Promoting transparency/long-term focus

Three goals and ten initiatives in total:

Environmental

Social

Governance

✓

✓

✓

UN 2030 Agenda

for Sustainable

Development

Paris Climate

Agreement(UN FCCC COP21

Paris Agreement)

Environmental

Governance

✓

Social

EU-commission

aConvening a High Level Expert Group (HLEG) with the aim of developing

recommendations for the design of a sustainable financial system

cConvening a Technical Expert Group (TEG) to implement the individual

points of the action plan

EU Action Plan

● Taxonomy

● Disclosure

● Benchmark

● MiFID II

b

d

TEG publishes

Green-Bond-Standards

The HLEG’s recommendations serve as the

basis for the action plan

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Sustainable Tax August 2020

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Link to tax and your take away

● Tax is part of required good governance

● Tax is part of definition of sustainable investment

● Tax should be aligned with SF objectives to

prevent doing harm

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Sustainable developmentSustainable investment - Tax

Presentation

UN PRI

● Investors integrate topic of tax in their

sustainable investment approach

● Driven by risk management and sustainability

agenda● Publish tax (transparency) expectations online;● Expectations can be categorized in:

○ Tax strategy/policy

○ Governance and tax risk management

○ Tax (transparency) reporting & compliance

● UN PRI provides guidance

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5. UN PRI on tax


7. Q&A and wrap up

23

Agenda

The PRIInvestor-led, supported by the United Nations since 2006

24

The PRI works with its international network of

signatories to put the six Principles for Responsible

Investment into practice.

Its goals are to understand the investment

implications of environmental, social and governance

issues and to support signatories in integrating these

issues into investment and ownership decisions.

2 3000+ 100+

Tax as an ESG issue

Affects

investment,

competition and

growth

25

Determines

the capital

available for

development

Influences

government

spending on

addressing

global

challenges

Finances

public

services

Relevance for investors

26

US$100bn – US$600bnAnnual cost of tax avoidance to governments

Tax is a key systemic risk that could have a serious effect on the profitability and the sustainability of a company, as well as broader impacts on overall portfolio and macroeconomic returns.

Unexpected reputational damage

Litigation costs and penalties

Poor board decisions

Social and macro-economic market distortions

Tax and Covid-19

Heightened scrutiny on business practices

SUSTAINABLE AND INCLUSIVE

COVID-19 RECOVERY AND REFORM

Stakeholder capitalism

Greater pressure to contribute to a

sustainable and inclusive recovery

https://www.unpri.org/covid-19-resources/sustainable-and-inclusive-covid-19-recovery-and-reform/6016.article

https://www.unpri.org/covid-19-resources/sustainable-and-inclusive-covid-19-recovery-and-reform/6016.article

Challenges in the absence of standardised data

28

Assessment of tax

risks and

opportunities

Identification of

leaders and laggards

Validation of

commitments against

practice

Provides clarity on boardroom priorities

and high-risk transactions

Helps identify inconsistencies between public positions and

actions

Provides a valuable backdrop for

discussions where red flags emerge

How can tax transparency help?

29

PRI’s tax programme

30

TA

X

ENGAGEMENT AT A GLANCE2017

2019

OVER 35institutional investors

(circa US$3trn in AUM)

KEY INVESTOR ASKS

Publish a global tax

policy

Report on tax

governance and risk

management

Produce country-by-

country reporting

TARGETS

41 large multinationals in technology and

healthcare – sectors known for

complex tax strategies

33 responded | 8 unresponsive

FINDINGS Out of 33 responsive companies:

▪ Only five explained

their approach to tax

havens

▪ None produced a

country-by-country

report

▪ 23 publish global

policies

▪ 27 commit to avoiding

aggressive tax planning

▪ 25 indicate board

responsibility for tax

issues

MEETING ASKS VS FALLING SHORT

More public disclosure on companies’ tax stance across

markets

Disclosure of underlying

economic and financial data to support public tax

assertions

Company governance

mechanisms to implement and

oversee tax strategy

What can investors do next?

33

Proactively monitor and

engage

Collaborate locally to

improve relationships

Make disclosure

requests consistent

Escalate where

appropriate

“To achieve impact,

investors should

systematically consider tax

practices within investment

decisions and pursue ongoing

engagement with various actors

including corporates themselves,

policy makers and other

stakeholders.”

unpri.org/tax-transparencyEngage with policy

makers

http://www.unpri.org/tax-transparency

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5. UN PRI on tax


7. Q&A and wrap up

34

Agenda

means for tax

What this

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illustratie in de bannerSustainable tax framework

Approach to tax

Tax strategy1

● Based on input from organizational

values, purpose, stakeholder

engagement, the business

strategy, sustainability

commitments (incl SDGs) and

international standards

● Responsible tax planning approach

● Tax transparency approach

● Roles, responsibilities and

accountability, at board and

supervisory board level

● Applied with a systems view

● Tax strategy to be implemented

and managed in the organization

through risk management

frameworks

● All statements of tax strategy

in scope

● Strategic and Operational Roles

and responsibilities

● Policies and procedures

● Communication and

accountability to stakeholders

● Transparency reporting in line

with tax transparency approach

● Financial and non-financial

(ESG)

● Assurance on tax (transparency)

reporting

Digitisation for Insights - Strategic decision making - Control - Reporting

Implement and

control2 Tax transparency

reporting3

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illustratie in de bannerTax transparency (1-2)

37

Tax

Transparency

Approach

Dilemmas and

explanation

of what you do

GRI

Tax reporting

Stakeholder

dialogue

ETR

reporting

Tax policy

publication

DAC6

FATCA/CRSCBCR

Tax

Contribution

Reporting

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Tax transparency (2-2)GRI 207: Tax 2019

Approach to tax

Stakeholder engagement and

management concerns

Tax governance, control and

risk management

Country by Country reporting / Tax

contribution reporting

01

02

03

04

● Global standard

● Applicable for reports published

on or after 1-1-2021

● ‘Mandatory’ when the organisation

uses GRI for reporting, and tax is

considered a material topic

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Some starting questions to consider

● Where does the organization stand in

the spectrum of sustainability?

● Does the tax behavior contribute to

the sustainability ambitions?● What do stakeholders expect, e.g. regarding

responsible tax planning or tax transparency?

● How does the organization report back to

stakeholders and show accountability on

the tax approach?

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5. UN PRI on tax


7. Q&A and wrap up

40

Agenda

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Questions & wrap up

Module A

Overview of examples

of tax governance

related regulations

around the globe

Module B

Expert views on

corporate (tax)

governance

Module C

GRI and UN PRI tax

requirements

Our publication, “Tax governance, creating a sustainable tax

approach in times of fundamental change”, is available on pwc.nl

Also, three additional modules are available:

https://www.pwc.nl/nl/dienstverlening/tax/tax-transparency.html

Thank you

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control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or

omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind ano ther

member firm or PwCIL in any way.

pwc.com

Upcoming webcasts

Transaction costs 27 August 2020

Taxation of the Digital Economy 10 September 2020

Modern tax control and HT 28 September 2020

Energy transition 30 September 2020

Payroll taxes 1 October 2020

Register here

https://www.pwc.nl/en/evenementen/webcast-series-state-of-tax.html

Documents

Sustainable Tax · Engaging in responsible tax practices ... Responsible tax planning approach Tax transparency approach Roles, responsibilities and accountability, at board and supervisory