In today’s world, and not just in business, the concept of ESG (Environmental, Social, Governance) is becoming increasingly important. Indeed, companies are being judged not only on their financial performance, but also on their environmental and social impact and the quality of their governance. In this context, tax governance is becoming a key element of the ESG strategy and is therefore worthy of further discussion.
Tax Governance – The foundation of responsible tax management
Tax governance is a comprehensive approach to managing tax liabilities that goes beyond mere compliance and includes, among other things:
- Developing a long-term tax strategy
- Ensuring transparency of operations
- Effectively managing tax risk
- Applying ethical tax practices
- Maintaining compliance
- Building positive relationships with tax authorities
- Regularly reporting on tax issues
Effective tax governance not only enhances a company’s reputation, but also contributes to building its financial stability and ESG compliance.
MDR – A key element of tax transparency
Reporting of tax schemes (MDR – Mandatory Disclosure Rules) is an important aspect of tax governance, which includes:
- Reporting of individual transactions or a series of related transactions that affect tax liabilities
- Specific rules for cross-border and domestic schemes
- Reporting obligations for qualified entities (revenues, costs or assets above EUR 10 million)
- Reporting of schemes concerning assets worth in excess of EUR 2.5 million
It should be noted that this obligation applies to schemes implemented after 1 November 2018.
Tax strategy – a new requirement for transparency
Companies with annual revenues of more than EUR 50 million are required to disclose information on their tax strategy. This requirement not only increases their transparency, but also allows them to demonstrate their commitment to ESG principles.
Cooperation agreement – A new quality of relationship with the tax authorities
From 2020, taxpayers can enter into a cooperation agreement with the Head of the National Revenue Administration (KAS). This innovative form of relationship between businesses and the tax administration is based on:
- Mutual trust and understanding
- Transparency of operations
- Respect for the specific nature of the taxpayer’s business
In fact, the agreement not only optimises tax processes, but also demonstrates organisational maturity and commitment to the principles of responsible business.
Summary
ESG is having a significant impact in the tax arena and is changing the way in which companies approach the management of their obligations to the treasury and to their beneficiary communities.
Tax governance, MDR reporting, public tax strategies and cooperation agreements are all creating a new pattern or attitude in which transparency, ethics and social responsibility are as important as financial efficiency.
In the ESG era, a responsible approach to tax is becoming a key element in building long-term value and trust. And not just among stakeholders.
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