Imagine the impact of such a varied and complex tax picture across an entire global supply chain and customer base. Depending on the country and region involved, and the products being delivered, organizations will have a lot of different taxes to comply with.
“I’ve had clients asking what their legislative landscape looks like, and what they can expect the impact of carbon taxes to be,” says Sofie Van Doninck, EY Belgium Indirect Tax Partner. “They’re just trying to understand what’s happening in the different countries, building a holistic overview of what it means in their specific case, and identifying their alternatives. The implications can be far-ranging. It can mean completely revisiting their business setup.”
Indeed, tax and finance functions will need to harness the latest data analysis technologies for tracking and reporting their own impact and exposure, and for calculating their tax liabilities. But the impact of carbon tax on the business will be far broader, and may call for bold decisions — potentially revisiting and adapting policies, operating models and business models.
“Carbon taxes need to be anticipated and integrated from the beginning of any business processes,” says Frank Burkert, EY EMEIA R&D and Innovation Services Leader. “We highly recommend companies get started by vertically integrating their supply chain —considering in one single step everything from resourcing and supplying; to processing and production; to sales and logistics. It involves the entire life cycle of a product. That's one of the key challenges, and key tasks, for businesses in the near future.”
Yet the fast-moving carbon tax picture needn’t be a threat. Many businesses are already seeing the value of investing in lower carbon intensity supply chains and in cleaner technologies, not least because they stand to benefit from tax credits and grants being offered by governments for things like renewables investments.
This field is expanding all the time — EY is currently tracking 3,600 different incentives being offered around the globe.
How tax and finance can step up
There’s a clear opportunity here for tax functions to serve as a strategic partner with their businesses — by steering leadership through the maze of global taxes, and helping them identify and capitalize on incentives and other emerging opportunities, all of which will also help align the business with the predominant direction of travel of consumer and investor sentiment.
“The opportunity here is huge,” says Burkert. “If companies approach carbon tax proactively, rather than simply treating it as a cost, it gives them a value — in terms of reputation, standing and demand. It shows they’re aligned with societal needs. This can help to gain new customers, and influence shareholder relationships and perception.”
Another advantage here is that this naturally brings the tax function into direct contact with other areas of the business — a collaboration that may foster greater innovation and help seed new ideas.
“When you’re talking about carbon taxes, it’s not typically a conversation only with the tax director,” says Van Doninck. “The sustainability team will have their own thoughts and their own strategy. This is a unique chance for cooperation.”
Given the scale of the opportunity as well as the challenge, the argument for working with an experienced partner on sustainability and related taxes becomes increasingly compelling. The right partner can help by providing advice, governance and impact assessment on the changing carbon tax landscape, including the potential effect on supply chains. They will have a solid understanding of the macroeconomic trends; of the upcoming regulations and standards; and how all this can be translated into business and operating models.
Meanwhile, the latest technology platforms, such as those harnessed in EY Tax and Finance Operate solution, can draw out the extra value hidden in a company’s carbon data — not just to track and communicate the company’s position, but to help drive better strategic decisions.
Carbon taxes are already here, and they’re becoming more prevalent. Companies need to meet them proactively, rather than sitting and waiting for the tax authorities to come knocking. By doing so, they may position themselves at the forefront of significant economic and societal change.
What begins with compliance soon becomes something much bigger: a chance to leap on to a raft of opportunity, not just in claiming the incentives governments are offering forward-thinking companies, but in standing on the right side of history.
“Investment firms are watching,” says Koch. “Customers are watching, and so are employees. I have interns now that come in because we work on carbon. And this is not unusual. This isn’t just a bunch of new taxes. These are globally important trends.”