Tax compliance is being seen more as a reputational asset and less as a burden, experts agreed at Real Asset Media’s Tax: Developing an Effective ESG Tax Strategy briefing, organised in partnership with PwC and held online recently.
“There is a shift from tax being seen as a cost, to tax being seen as a contribution to society,” said Dave Reubzaet, director tax governance and sustainable tax, PwC Netherlands. “It’s a change driven by Covid-19, but also by sustainable development goals.”
The emphasis on non-aggressive tax planning, on putting robust governance in place and on being very transparent in how you deal with tax is a new and significant shift.
“In the tax world transparency hasn’t always been a given, so what’s happening is a big shift and in my view a very positive one,” said Reubzaet.
Tax teams have been used to ticking the right boxes without taking ESG into account, but now companies want to integrate it. Tax can become an instrument of social and environmental value creation, but it will also protect a company, making their investments ESG-proof and their actions scrutiny-proof.
Payment of tax part of reputational risk management
“I see a trend that tax is becoming more important because reputational risk has become more of a factor,” said Remko Van Hijum, head of tax, Bouwinvest Real Estate Investors. “Pension funds and other institutions are more risk-averse now because their investments and behaviour are under increasing scrutiny from the public.”
Bouwinvest decided to assess every part of the investment policy from a tax aspect and in 2018 started to draft a company policy designed to create financial value but also value for society in different ways and over the long term.
“The policy was adopted and became effective in January 2019 but we adjust it in line with the latest case law, legislation and our recent transactions,” said Van Hijum. “The policy of course must be reflected in our behaviour, so we’ve improved our reporting to stakeholders.”
Late last year INREV published the first Tax Code of Conduct, based on five guiding principles related to governance and social responsibility.
“The INREV tax code is a very good development, because it creates a standard,” said Richard van der Linden, tax partner real estate, PwC. “It means that when you are talking of tax you are talking the same language and referring to the same things.”
All companies are advised to develop a tax strategy that takes ESG elements into account and that can be explained to all stakeholders.
“It’s important to know that tax is present in all three elements, in the E of environment, the S of social and the G of governance, even if it might not be obvious,” said Reubzaet. “Paying your fair share and having a fair remuneration policy are part of the S, while codes of conduct risk control and transparency reporting are part of the G.”
Click below to watch full panel session.