Sustainability and climate change tax: Overview

The global financial crisis has created extreme short-term pressures on businesses, but they remain focused on understanding the commercial implications of climate change and developing sustainable business strategies.

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Tax has an integral role to play as businesses and governments collectively look to address these challenges. As governments around the world start to introduce taxes, incentives and regulation as a key component of their policies around sustainability and climate change, this presents businesses with a range of new opportunities and risks.

Opportunities include the chance for businesses to gain competitive advantage—for example, by adapting their business models, technologies and product ranges in order to become more eco-friendly, and in doing so, benefiting from the various incentives available to them.

With an ever increasing number of groups coming within the scope of various sets of carbon emissions' rules around the world, it is imperative that the tax implications of the group's strategy for complying with the various sets of rules are understood. Questions such as the deductibility of the purchase price of emissions' credits, their VAT treatment and how to move credits around the group all need to be addressed, along with thinking about how the carbon strategy generally impacts on the group's tax profile and strategy.

Risks include the inability to adapt to what is required of businesses by consumers and governments, the costs of emissions’ trading, and the reputational and financial risk of penalties for failing to observe, or comply with, environmental taxes and regulation, which are increasingly coming into play in different regimes worldwide.

From a business perspective, it is hard to keep track of these environmentally motivated taxes and regulation, as in most territories, they are still evolving. In many cases, the measures introduced can be complex, not yet harmonised with other international legislation, and uncertain in terms of the potential tax impact. Being aware of specific tax and regulatory changes, and emerging trends, will enable companies to plan for a number of scenarios and assess the potential impact of the commercial impact of this developing agenda on their businesses.

This is, perhaps, even more of an issue for businesses in the current economic climate, with the added pressures on cost-control and risk management. Businesses need to be fully aware of potential tax liabilities in order to be able to manage these effectively.

At PwC, we have a dedicated team of advisers to support businesses with these and any other important strategic and ethical challenges they face around climate change and sustainability in its broadest sense.