Interview with Rochelle Kleczynski, Tax Sustainability, Climate & Equity Leader and Lead Tax Partner, Deloitte Tax LLP
What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
The path to invest in making a business less carbon intensive – or even net neutral – was made more viable with the passing of the Inflation Reduction Act of 2022. The Act is spurring organizations to think strategically about the legislative change. It can be used as a catalyst for moving forward with significant capital investment opportunities related to sustainability.
What has been the most significant impact of that change?
The Inflation Reduction Act includes enhanced and new incentives for companies to reduce carbon emissions and invest in clean energy. It also provides new options for credit utilization that will meaningfully impact the project financing and development landscape of the energy transition, including providing benefits to tax-exempt companies and others that historically could not benefit from tax credits.
How do you anticipate that change impacting your work and the market moving forwards?
The Inflation Reduction Act has received a lot of attention and, as a result, tax is getting a seat at the table in environmental, social, and governance (ESG) strategy discussions. The ability to access government funding and tax credits is creating a sense of urgency and accelerating investments that may not have had the funding support otherwise. In addition to federal legislation, there are state and local programs that are available to fund certain activities. Taking a broad-based approach to understand the capital investment strategy and identify all the opportunities for financing available in the form of grants, credits or other incentives is critical to maximizing what might be currently available.
How has this changed the way you offer tax advice?
Tax advice in this area requires close collaboration between the tax function and the business at our clients. Accessing the inventory of planned short and long-term capital investments and understanding the nature of the investments requires close working with the business. Being involved early is critical.
Matching the potential opportunities for tax credits and incentives with the company’s tax profile from a global, federal, and state perspective to monetize the benefits, often requiring tax to take the lead in this area.
What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
There has been recent news that the US Securities and Exchange Commission (SEC) is considering requiring companies to disclose more tax data on a country-by-country basis and to expand on effective tax rate disclosures. Trust and transparency are becoming more intertwined, which has forced many companies to scrutinize their responsibilities and role in society. The US and the international ESG standard-setters and government regulators have highlighted the topic of tax transparency as an important topic.
The significance of tax in ESG reporting and disclosures, coupled with the momentum for enhanced transparency in organizations, has brought tax into more conversations with clients as they navigate disclosure and transparency strategies.
What are the potential outcomes that might occur if those changes are implemented?
As regulations and external pressures increase, we are starting to see more companies prepare for additional disclosures in the future as it relates to their tax strategy and taxes paid. The data challenges associated with these disclosures require thoughtful planning to determine the best way to capture the information needed. It is important for companies to understand the sustainability standards that currently exist and how their competitors are approaching disclosure. Stronger tax governance and transparency is becoming a business imperative.
2022. For information, contact Deloitte Global.