It is also clear from the Index that governments are using tax beyond the policy areas of energy and carbon to address resource efficiency more broadly and to spur green innovation. The green tax landscape is expanding constantly.
Simply being aware of all the relevant instruments in place in all the markets where a company operates is in itself a significant challenge, particularly for multinationals. Resources and attention are often focused first and foremost on compliance with penalty legislation.
This means that, too often, insufficient importance is attached to strategic responses that could reduce exposure to those penalties.
Furthermore, without a proactive approach to green tax incentives, opportunities can be missed and the sums involved can be significant.
For example, KPMG in the US has helped a multinational consumer products company to review its planned investment in an R&D facility. Opportunities of approximately USD30 million were identified related to energy credits, R&D tax deductions and credits, fixed assets and other incentives.
Similarly, also in the US, a review of energy-efficient data centers and production facilities for a large software company identified approximately USD40 million of opportunities related to energy-efficient building deductions, R&D deductions and credits, and other deductions.
KPMG in South Africa assisted a client to apply for a tax allowance for a bio-diesel manufacturing plant. The project was subsequently approved by South Africa’s Department of Trade and Industry as a Greenfield project with preferred status, adding a net tax benefit of 252 million South African rand (ZAR) (USD28.5 million).
This shows there are big opportunities to be grasped beyond cost reduction. Green tax incentives can make projects feasible that will help companies reshape their business and develop new markets, products and services.
Yet too often these opportunities fall through the cracks between operations, tax, finance and sustainability functions.
In order to help companies to overcome these issues and take advantage of the available benefits of green tax systems, KPMG's network of member firms recommends that business leaders, boards and heads of tax, finance and sustainability work together on the following.
- Ensure a system is in place to monitor the landscape of green tax penalties and incentives worldwide and keep the business informed of relevant developments and their potential usefulness.
- Review the company’s response to green tax penalties (such as carbon taxes and cap-and-trade systems) and explore strategies and investments that could reduce current and future financial exposure.
- Review all projects in the pipeline to assess whether green tax incentives have been missed.
- Ensure that all proposals for sustainability programs have return-on-investment calculated on an after-tax basis.
- Build understanding of green tax opportunities across the business and develop communication and collaboration between operations, tax, finance, sustainability and other relevant functions.
- Engage with governments and industry associations to provide a business view of how green tax tools can best be designed to help companies assist governments in achieving their green policy goals.
The KPMG Green Tax Index is not meant to be the final word in how investment decisions are made, but it can help to focus attention on a challenge that many multinationals struggle with. And that perhaps presents the area of greatest opportunity: to bring a greater understanding of the entire financial picture of green investments, pre and post-tax.