How ESG developments shape business tax practice in Luxembourg has been saved
How ESG developments shape business tax practice in Luxembourg
Tax is an essential dimension of the Environmental, Social and Governance (ESG) criteria, proven by the rapid evolution and development of tax governance and transparency. Tax governance and control frameworks are high on the agenda of business executives, C-suites, and Boards seeking to reduce tax risks and demonstrate the sustainable tax behavior of their businesses.
Sustainability, as well as the development of cooperative tax compliance, has placed an additional emphasis on tax transparency in order to proactively disclose tax information, beyond statutory obligations, to a wider base of stakeholders, including investors, clients, the media, and the general public.
Objectives of our survey
To obtain a better understanding of how Luxembourg-based companies respond to these developments, we conducted a survey during the first half of 2021, focusing on three particular objectives:
- Understanding the environment, trends, and stakeholder expectations that influence the organization of businesses operating in Luxembourg and the tax-related risks they are facing;
- Measuring the maturity and effectiveness of their tax governance to result in correct tax outcomes and to ensure they meet their obligations;
- Understanding the integration of tax within the sustainability strategy and communication of respondents.
Tax governance remains high on the Board’s agenda to navigate increasing complexity
59% of respondents find that the growing complexity of the tax environment is the primary source of tax risk.
63% believe that engaging with tax administrations in cooperative tax compliance programs would be a great solution to navigate through said complexity and reduce induced tax risks.
Tax is still perceived as a matter for experts, mainly discussed internally within the tax or finance function.
The tax governance and control framework must be improved in Luxembourg in order to meet sustainability challenges
There is an increasing awareness from respondents on the necessity to develop tax governance and control frameworks to adapt to the growing complexity of taxation and to meet sustainability expectations.
The current limited maturity of the tax governance and control frameworks of respondents in Luxembourg may be an important source of tax risk, requiring further development in order to become sustainable.
- The maturity of the oversight and governance is basic or developing for 73% of respondents.
- 81% of respondents have basic or developing processes.
- The available resources and their organization, including the employment and management of skilled people, was the most developed of the five pillars forming tax governance frameworks in Luxembourg, with 32% of respondents marking this area as mature or even advanced.
- The development of tax data and technology is limited.
Going beyond requirements with tax transparency - An opportunity offered to Luxembourg-based businesses
While 95% of respondents expect to communicate publicly complex and highly technical tax data, only 46% expect to go beyond requirements to provide explanations.
From a “nice to have”, such tax communication is quickly becoming an obligation in 2021 and beyond. Therefore, it will be key in building a narrative to clearly explain tax data and to educate stakeholders in light of the high reputational risk involved.
About the survey
- 41 respondents from all economic sectors composing the Luxembourg economy.
- 11 questions of both quantitative and qualitative nature.
- We have corroborated the results of our survey with the outcome of Deloitte's 2021 Global Tax Survey: Beyond BEPS.