Top Countries Using Tax Code to Shape Sustainable Corporate Activity

The United States ranked first among twenty-one countries most actively using the tax code to influence sustainable corporate activity, according to the inaugural edition of the KPMG Green Tax Index, reflecting the country's extensive and long-established program of federal tax incentives for energy generally, including specific incentives for energy efficiency, renewable energy, and green buildings. 

Japan, the United Kingdom, France, South Korea, and China were also among the leading countries using tax as a tool to drive sustainable corporate behavior, according to the index. Key policy areas explored in the index include energy efficiency, water efficiency, carbon emissions, green innovations, and green buildings.
 
"The KPMG Green Tax Index provides important directional insight for corporate sustainability decision makers, CFOs, and board members into how countries are using taxes to influence corporate behavior," said John Gimigliano, principal-in-charge of sustainability tax in the Washington National Tax practice of KPMG LLP. "Japan, for example, tops the rankings in its promotion of tax incentives for green vehicle production, while the United States favors a comprehensive system of renewable energy tax incentives. As a result, we're seeing more green cars coming out of Japan and dramatic growth in the US renewable sector."
 
"These activity-based rankings can be of value to corporate sustainability decision makers as they allocate budgets and evaluate investments around the world," said John Hickox, advisory partner and US practice leader for Climate Change & Sustainability Services at KPMG LLP.
 
The KPMG index identified over 200 individual tax incentives and penalties of relevance to corporate sustainability. At least thirty of these have been introduced since January 2011, reflecting the quickening pace of green investment globally.
 
KPMG Green Tax Index – Overall Country Rankings
  1. United States
  2. Japan
  3. United Kingdom
  4. France
  5. Korea
  6. China
  7. Ireland
  8. The Netherlands
  9. Belgium
  10. India
  11. Canada
  12. Spain
  13. South Africa
  14. Singapore
  15. Finland
  16. Germany
  17. Australia
  18. Brazil
  19. Argentina
  20. Mexico
  21. Russia 
US Ranking
The United States tops the KPMG Green Tax Index ranking primarily due to its extensive program of federal tax incentives for energy efficiency, renewable energy, and green buildings. 
 
According to the KPMG Green Tax Index, the US tax code provides a range of tax credits, including a production tax credit on renewable energy and tax incentives construction of efficient buildings. 
 
The United States uses green penalties less than other Western developed nations apart from Canada. When green tax penalties alone are considered, the United States drops to fourteenth. 
 
"The KPMG Green Tax Index demonstrates how important it is for corporations to make sure their head of sustainability and their head of tax are talking," said KPMG's Gimigliano. "At many companies these functions may have never met. One critical lesson from the Green Tax Index is that for companies to enhance the return from its green spend, the tax and sustainability functions should collaborate before the investment decision is made."
 
"Green investment continues to gain momentum globally, and the KPMG Green Tax Index provides a greater understanding of the entire financial picture of green investments, pre- and post-tax," added KPMG's Hickox.
 
Ranking of Additional Global Economies
  • Japan is ranked second overall but, in contrast to the United States, 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 United Kingdom ranks third and has a green tax approach balanced between penalties and incentives. The United Kingdom scores most highly in the area of carbon and climate change.
  • France occupies fourth place in the overall ranking with a green tax policy more heavily weighted toward penalties than incentives.
  • South Korea ranks fifth, and like the United States, has a green tax system weighted toward 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 sixth with a green tax policy balanced between incentives and penalties and focused on resource efficiency (energy, water and materials), and green buildings. 
"The very investments that can drive change and secure competitive advantage may never be made if green tax systems are not fully understood and used," said KPMG's Gimigliano. "Investments that struggle to make a case on a pre-tax basis can flourish after green tax analysis. Companies should not underestimate the potential of green tax incentives to deliver efficiency and productivity benefits, drive innovation, and contribute to the bottom line."
 
About the KPMG Green Tax Index
The KPMG Green Tax Index focuses on twenty-one 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.
 
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. Full details of the scoring methodology can be found at www.kpmg.com/greentax.
 
Source: KPMG LLP
 

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