Tax and the CSRD

In line with global efforts, the European Union aims to achieve climate neutrality by 2050 while promoting economic growth that ensures stability, employment, and sustainable investments.

To support this goal, the European Commission introduced the Corporate Sustainability Reporting Directive (CSRD).   This directive encourages investors to make sustainable investments, leading to sustainable and inclusive growth.

So, how does this relate to tax? Although the CSRD doesn't directly address tax compliance or specific tax requirements, it is important to consider the EU taxonomy that underpins the CSRD.

The Taxonomy includes "Minimum Safeguards" (MS), which require alignment with international frameworks like the OECD Guidelines for Multinational Enterprises.  As outlined below, the MS also specifically cover tax governance and compliance requirements.

OECD Guidelines

Generally, the OECD MNE guidelines recommend that enterprises follow good governance practices as stated in the Principles of Corporate Governance.  Specifically, the guidelines suggest that responsible corporate citizenship in taxation means complying with the spirit of tax laws and regulations in all operating countries, cooperating with authorities, and providing relevant or legally required information.

Furthermore, the guidelines state that "Enterprises should treat tax governance and tax compliance as important elements of their oversight and broader risk management systems. In particular, corporate boards should adopt tax risk management strategies to ensure that the financial, regulatory and reputational risks associated with taxation are fully identified and evaluated."

The Minimum Safeguards (MS)

While there is no specific EU guidance on applying the MS, the Platform on Sustainable Finance (PSF) offers some direction, outlining two tax indicators of non-alignment for CSRD:

1. A company fails to treat tax governance and compliance as important elements of oversight and lacks adequate tax risk management strategies and processes (as outlined in the OECD Guidelines for Multinational Enterprises).
2. A company has been found guilty of tax evasion (in some cases, the PSF report refers to a company being found in violation of tax laws).

When do the rules take effect?

Starting from the 2025 financial year, large companies must report on sustainability mandatorily. All listed companies (with over 500 employees) must report on this as early as the 2024 financial year. Non-EU companies (including EU subsidiaries of a non-EU parent) operating in the EU may also fall under the CSRD scope, whether listed or not.

Now is the time to start planning for its application.

A more comprehensive article on this crucial area will follow shortly, providing further insights and guidance on the topic.

Read more on the intersection of Tax and the CSRD.