The Impact of ESG Criteria on Taxation

This study investigates the impact of environmental, social and governance (ESG) criteria on current tax systems worldwide. Although ESG principles have yet to be codified in hard law in most countries, they are gaining increasing prominence in shaping business practices and policies, recommending sustainable business models and discouraging initiatives which do not align with the need to preserve the environment and social inclusiveness. Rather than determining the possible long-run impact of ESG criteria implementation, the study explores how they might influence the interpretation and application of existing tax rules even without explicit legal mandates. It delves into four key areas where ESG considerations could be a significant factor: calculating business income, transfer pricing regulations, applying anti-avoidance rules, and interpreting the “business purpose” test. The study suggests and provides evidence that, although such principles are not binding per se, they are already interpretive tools which can nudge the interpretation of law by tax administrations and judiciaries. It concludes by emphasizing the potential of ESG principles for shaping the future of taxation and promoting a more sustainable and equitable approach to economic growth.