KPMG identifies countries most active in using tax as green policy tool

Six countries – the US, Japan, UK, France, South Korea and China – were today named by KPMG International as the most active in using tax as a tool to drive sustainable corporate behavior and achieve green policy goals.

The finding is contained in the first KPMG Green Tax Index, launched today at the 2013 KPMG Asia Pacific Tax Summit in Shanghai.

The KPMG Green Tax Index explores how governments are using their tax systems to respond to global challenges including energy security, water and resource scarcity, pollution and climate change.

It analyzes green tax incentives and penalties in 21 major economies, focusing on key policy areas such as energy efficiency, water efficiency, carbon emissions, green innovation and green buildings.

The KPMG Green Tax Index is intended to raise corporate awareness of the rapidly evolving and complex global landscape of green tax incentives and penalties, and to encourage tax directorsand sustainability chiefs to work together to factor green tax considerations into investment decisions.

“Green taxation is a rapidly evolving and increasingly complexarea,” says Greg Wiebe, KPMG’s Global Head of Tax. “A multitude of challenges are facing tax functions worldwide. And, yes, this is an area of tax management requiring time, effort and dollars. However, if addressed with knowledge and pro-activity, the challenges can be opportunities.”

“Governments are increasingly using green tax as a tool to change corporate behavior and to address serious challenges such as energy security, resource and water scarcity, and climate change,” says Yvo de Boer, KPMG’s Special Global Advisor, Climate Change & Sustainability.

“Our analysis shows that at least 30 new green tax incentives, penalties or significant regulation changes have been introduced in the countries we studied since January 2011. A pro-active approach to green tax can help companies reduce the cost of strategic investments, drive innovation, improve efficiencyand secure competitive advantage.”

The ranking shows:

• The US tops the ranking primarily due to its extensive program of federal tax incentives for energy efficiency, renewable energy and green buildings.
• When green tax penalties alone are considered, the US drops to 14th, indicating that US green tax policy is weighted heavily in favor of incentives.
• Japan is ranked 2nd overall but, in contrast to the US, scores higher on green tax penalties than it does on incentives. Japan also leads the ranking for tax measures to promote the use and manufacture of green vehicles.
• The UK ranks 3rd and has a green tax approach balanced between penalties and incentives. The UK scores most highly in the area of carbon and climate change.
• France occupies 4th place in the overall ranking and is also unusual in that its green tax policy is more heavily weighted towards penalties than incentives.
• South Korea ranks 5th overall and, in common with the US, has a green tax system weighted towards incentives rather than penalties. South Korea leads the ranking for green innovation which suggests that South Korea is especially active in using its tax code to encourage green research and development.
• China ranks 6th with a green tax policy balanced between incentives and penalties and focused on resource efficiency (energy, water and materials) and green buildings.
• The US uses green tax penalties less than other Western developed nations, apart from Canada. The only countries in the Index that impose fewer green tax penalties than the US or Canada are emerging economies such as Brazil, India, Mexico and Russia. China and South Africa are both more active than the US or Canada in imposing federal green tax penalties.

The KPMG Green Tax Index attributes scores to green tax incentives and penalties according to arguable value and potential to influence corporate behavior. Scores should be taken as indicative, not absolute, in providing a view of governments with the most active and developed green tax systems in place.

About the KPMG Green Tax Index
The KPMG Green Tax Index focuses on 21 major economies around the world that KPMG International believes represent a major share of global corporate investment activity. A high ranking in the Index does not necessarily mean that a country is “greener” than others. It means that the government is more active than others in using the tax system as a tool to influence corporate behavior and achieve green policy goals.

A lower ranking does not mean that a government has no green tax or incentive instruments in place. Every nation listed on the KPMG Green Tax Index uses green taxes and incentives to an extent worthy of investigation by corporate tax and sustainability professionals. Countries in which the government does not use green taxes or incentives at all, or does so only minimally, have not been included in the sample of countries selected for review in the Index.

the KPMG Green Tax Index attributes scores to all relevant green tax penalties and incentives identified, according to arguable value and potential to influence behavior. Scoring has required some discretion and judgment to be used and so scores should be taken as indicative, not absolute, in providing a view of those governments with the most active and developed green tax and incentive systems in place. View full details of the scoring methodology.

Scoring is limited to instruments that are part of a country’s tax code, i.e. tax penalties, credits, deductions, enhanced allowances, accelerated depreciation and indirect tax benefits. Many governments also use other incentives such as grants, subsidies and soft loans to influence corporate behavior. The Index highlights notable examples of such instruments where appropriate, but does not score them individually due to the sheer number and fluidity of these programs. Scoring has been limited to federal tax codes although the KPMG Green Tax Index highlights noteworthy examples of sub-national tax penalties and incentives.

April 24, 2013.