Deriving business value from tax governance as part of the ESG strategy
Real estate players have an opportunity to increase the value of their portfolio
ESG Real Estate Insights 2021
When governance models are reviewed by real estate players to achieve their ESG goals, it also integrates an important tax dimension – tax transparency – which requires the production of data on tax governance and a control framework, and which is in many cases not yet available. Real estate players have an opportunity to increase the value of their portfolio and their brand by taking pre-emptive actions to set up a tax governance as part of their overall ESG strategy.
Robust governance models which include transparency reporting have become the cornerstone of the EU policy agenda, attracting tax in corporate ESG strategies. There are currently few legal requirements for businesses to be publicly transparent regarding taxes beyond pure financial reporting obligations. However, there are a significant number of voluntary best practices such as Global Reporting Initiative1 and the World Economic Forum2, etc.
As from 2021 onwards, tax transparency will be embedded in sustainability reporting regulations. Businesses will have to report about tax at two levels, one for financial reporting purposes to their shareholders, and a second for sustainability reporting purposes to a much wider base of stakeholders, including investors, media, NGOs and the general public.
EU Public Country-by-Country tax reporting is well underway to become a reality and would require multinational enterprises to publicly disclose certain tax information for the countries in which they operate.
Under the EU Sustainable Finance Disclosure Regulation, financial market participants and financial advisers must disclose sustainability risks in all investments, notably with respect to companies’ good governance practices and in particular to tax compliance.
These transparency obligations would require businesses to produce data on their tax governance which is in many cases not yet available (e.g. description of the approach to tax and how it is linked to the business and sustainable development strategies of the organization, description of the assurance process for disclosures on tax, etc.).
The challenges and opportunities raised by sustainability in relation to tax requires businesses to anticipate, adapt, and act proactively by developing and mastering tax governance and tax communication, which are interdependent.