Focus on tax transparency for life sciences companies

Are you aware of tax transparency issues regarding ESG (Environmental, Social and Governance) and sustainability within life sciences companies? Is your business ready for the challenge?

There is a reason you should be.

Recently, there has been a major cultural shift as governments and societies have increased their focus on social and health issues, environmental concerns, sustainability, and corporate governance.

They want companies to operate responsibly. This has led to more calls for ESG initiatives, as life sciences companies are also expected to measure “success” as more than just profitability. It’s about what they “give” to society, for example, to patients and societies around the world, what they do to protect the environment, and how they act and govern themselves.

Not surprisingly, then, the ESG is now at the center of board discussions.

How well are you able to demonstrate your commitment to and contribution to achieving ESG and sustainability goals, and whether you can achieve the 17 UN Sustainable Development Goals (such as ‘End Poverty’, ‘Zero Hunger’, ‘Sustainable Cities and’ ), a clear measure of such success – tax transparency is increasingly seen as a key component of ESG disclosure and a key metric when demonstrating your responsible attitude toward taxes.

Prepare for the challenge

However, becoming a more ESG-friendly organization is a complex journey. It involves changing how your company handles business while being transparent and accountable – not an easy task as there is no general agreement on the measures.

While every life sciences business has its own unique requirements, and most are in different stages of tax reporting and ESG development, there are still several common questions that need to be addressed:

  • Has your business committed to meeting and reporting under any ESG standards or criteria?
  • Are you adequately collecting and analyzing correct data about your ESG activities?
  • Can your technology support you?
  • Have your employees been properly trained?
  • Do you have the right partnerships and alliances in place – ones that can help you create progressive approaches that drive your ESG initiatives?
  • Do you have a real idea of ​​the environmental impact of your company?
  • Is your board aligned with what you want to achieve, and do they have access to the right information so they can provide effective oversight?
  • As investors increasingly incorporate ESG factors into investment decisions, they are taking a closer look at how organizations manage tax risks. Have you developed a tax risk policy? Do you have a tax risk appetite statement and do you adequately disclose tax risks?

There are no easy answers to these questions. But getting it right can give you a competitive advantage.

For life sciences and chemical companies, this is especially important as the ongoing coronavirus pandemic, climate change, and other environmental and social/health issues keep them in the spotlight. As governments, shareholders, and the public focus on your taxes, getting your tax transparency reports right is not only necessary, but potentially beneficial.

Therefore, your ESG strategies must take into account tax transparency and show how they serve the communities in which you do business. Your tax planning must also align with and support the ESG agenda.

You should be seen as not just ‘talking the talk’ but ‘walking the way’. If you feel like you’re treating taxes as just a cost center that must be reduced by all means, ESG’s efforts can be questioned, if not downright undermined.

Everyone has a stake in climate change, sustainability and social justice. Tax transparency should take a central role in any conversation on these issues. This means that you must participate in the ESG and Sustainability discussions. This way everyone helps, and everyone can win.

Excerpt taken from KPMG Thought Leadership post:

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