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New Tax Relief Proposed to Help Businesses Adapt to ESG Reporting Requirements

POLITICSNew Tax Relief Proposed to Help Businesses Adapt to ESG Reporting Requirements

In response to the new ESG non-financial reporting requirements that came into effect at the beginning of this year, the Confederation of Leviathan and Ayming Poland have approached the new government with a recommendation to introduce the so-called “Relief for Sustainable Development”. The new tax instrument is aimed at supporting companies in implementing the European Commission’s guidelines on sustainable development. The proposed solution would help businesses effectively adapt to new standards while promoting environmental and socially responsible business practices.

With the implementation of the CSRD directive, from the beginning of this year, ESG non-financial reporting requirements are in force, which includes publicising and settling the implementation of sustainable development goals. The obligation to submit a report for the fiscal year 2024 applies to companies employing more than 500 workers, those with a net turnover greater than 40 million euros or those holding assets exceeding 20 million euros. In the following years, the same rules will be applied to companies employing more than 250 people, for the fiscal year 2025, and small and medium enterprises listed on the stock exchange for the year 2026.

“By 2025, the largest companies will be obliged to present a report for the fiscal year 2024. This requires not only accurate documentation of decisions related to sustainable development but also, often, taking investment initiatives, such as the development of ecological innovations. Our research shows that the main obstacle for companies to engage in innovative projects are financial constraints. In this context, the introduction of the “Relief for Sustainable Development” could provide key support. This tax benefit would have individual significance for each company in terms of adapting to the regulations, but also in general, it would support Polish businesses in the process of adapting to European guidelines and green, sustainable economic transformation,” explains Agnieszka Hrynkiewicz-Sudnik, Director of Consulting at Ayming Poland and Chairperson of the Tax Council of the Confederation of Leviathan.

The “Relief for Sustainable Development” could cover costs associated with broad actions for sustainable development. This could concern investments in renewable energy sources, implementation of social projects, pro-ecological activities as well as social support and promotion of responsible economy.

The authors of the proposed initiative also suggest expanding the tax relief scope defined in article 18ee of the CIT Act to also include costs of activities related to sustainable development.

In the context of the growing challenges associated with environmental protection and the need to adapt to European guidelines in this area, we proposed to expand the scope of this relief. The new regulations would cover expenditures on pro-ecological activities, including the construction of installations using renewable energy sources, recycling of raw materials, and initiatives aimed at reducing environmental pollution”, comments Agnieszka Hrynkiewicz-Sudnik.

Similar measures are already being implemented in the first EU countries.

In 2022, EU Member States were authorized to apply zero or reduced VAT rates to the supply of certain environmentally friendly goods and services. This concerns the supply and installation of solar panels, renewable energy sources, and the supply and installation of highly energy-efficient low-emission heating systems.

As for the introduction of tax preferences for businesses, the representation of European countries is not numerous.

So far, an instrument similar to the discussed proposal has been operating in Italy for some time, where the local “Relief for Technological Innovation, Digital Transformation and Green Transformation” allows companies to obtain refunds up to 15%, if the qualifying costs cover technologically innovative actions, aiming at achieving goals associated with green transformation. The maximum annual support limit in this case is 2 million euros, comments Agnieszka Hrynkiewicz-Sudnik.

The second similar project is the French C3IV, which was approved by the French government as part of the 2024 budget bill. This instrument also received approval from the European Commission for compliance with EU state aid regulations. The final list of key components and critical raw materials under preference will be determined by decree within three months.

Under the C3IV scheme, industrial and commercial sector companies will be able to count on support for investments in environmentally friendly technologies, such as battery production or solar panels.

Compared to the Italian and French initiatives, our proposal seems more complex and comprehensive, as it includes not only investments in green transformation, but also, among others, the implementation of social projects or promoting responsible economy, explains Agnieszka Hrynkiewicz-Sudnik.

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