Sustainability and the supply chain: what tax teams need to consider

Low-carbon policies, companies’ net zero targets and measures such as green taxes and incentives are transforming supply chains and it’s a shift that brings both challenges and opportunities.

Previous articles in our supply chain series have explored the effects of the digital revolution and rising costs on how and where we trade. Next, we look at the influence climate action is having, and the role tax professionals can play in the transition to a sustainable economy. 

Heightened global uncertainty has made building resilient, transparent supply chains even more urgent. It’s an added pressure for businesses that are already scrutinising their operations to understand their impact on the planet and society.

But sustainable business models can help bolster resilience in supply chains. From clean energy to circularity, decarbonisation is smart business. It can, however, mean venturing into new territory, which can be a lot to grapple with.

Today, sustainability is more than a compliance obligation; it’s a commercial imperative. And organisations that embed these considerations within their tax plans stand to gain when it comes to managing risks and costs and realising growth opportunities.

Navigating a complex landscape

While the impact of the transition to a sustainable economy extends beyond tax and legislation, it’s impossible to ignore new and evolving tax and trade policies that are being used to encourage climate-conscious business practices, especially when there are incentives available to those embracing the evolution.

Already in effect or on the horizon, these policies are putting sustainability firmly on tax teams’ radars. Increasingly, they are coming into play when products cross borders, intersecting closely with customs and trade.

Big hitters include the EU Carbon Border Adjustment Mechanism (CBAM), which is due to become fully operational on 1 January 2026, with the UK CBAM following a year later. Part of a wider carbon pricing landscape that’s includes tax measures, both require detailed emissions reporting for imports of carbon-intensive goods, with some of the data often housed within customs or supply chain functions. For impacted businesses, there could be considerable cost and commercial implications.

The EU Deforestation Regulation (EUDR) prevents companies from selling into or exporting certain products from the EU, unless it can be proven they are “deforestation free” and produced in compliance with relevant laws. Again, classification, traceability and origin data are key.

These will add to the obligations already created by, for example, Extended Producer Responsibility requirements and Plastic Packaging Taxes. Broader disclosures under the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive will subject supply chains to more scrutiny, so it’s important that links are made with other business areas to ensure all tax and regulatory obligations are managed efficiently.

5 considerations for tax teams and their businesses

To help companies stay compliant – and competitive – tax professionals can adopt a more strategic role in creating stronger, more sustainable supply chains.

This space is fast moving, but there are clear areas where tax teams can offer insights on both the risks and opportunities.

This isn’t just about obligation; it’s also about opportunity. There are plenty of positives to explore in this new landscape.

So how do you make the most of them?

• Engage early. Grants and incentives are often time sensitive. Early identification and planning – ideally involving the tax function at the outset – can ensure qualifying conditions are met.
• Invite cross-business collaboration. Tax teams need to work closely with operations, sustainability and finance functions (amongst others) to stay informed about potential qualifying criteria, such as changes to manufacturing locations, products and vehicle fleets.
• Recognise differences in jurisdictions. Incentives vary by jurisdiction, and tax considerations may be the deciding factor between otherwise equivalent sustainability-led decisions.

The wider impacts of supply chain changes

Sustainability goals are prompting organisations to redesign their supply chains, for example, introducing new locations, suppliers, transport routes or logistics partners. All of these have tax implications, which is why staying up to date with broader business changes is so important.

Alternative approaches and emerging business models raise tax treatment questions and may call for engagement with tax authorities or regulators. These include sharing surplus renewable energy with local businesses, introducing product-as-a-service models where the business retains ownership and charges a subscription for the goods, as well as selling repaired items that have been returned by customers.

For example:

• Direct tax: Rethinking manufacturing or distribution footprints may trigger permanent establishment risk, variations to contractual obligations and, more broadly, the need to consider the impact of potentially operating in new territories on a Group’s tax profile.
• Transfer pricing: The introduction of circular business models, the use of different manufacturing methods / locations to reduce emissions and more fundamental changes to a supply chain will need to be reflected in transfer pricing operating models.  As companies benefit from the shift to a more sustainable supply chain, how that value is captured and created should also be considered from a transfer pricing perspective.
• Grants and incentives: New sites or models may unlock or forfeit access to local incentives and free trade zones, requiring careful analysis. Planning and systematic analysis of opportunities is critical to being able to leverage available funding mechanisms, which can only be achieved through close collaboration between tax teams, the wider finance function, and specialist supply chain teams.
• Indirect taxes: New business models and changes to supply chains can have indirect tax impacts. For example, shifting to a circular business model could lead to businesses making supplies of services rather than goods, and import VAT recovery considerations where goods are leased rather than owned. Sourcing changes could lead to a change in origin for customs purposes, potentially with implications for access to preferential duty rates.
• Employment taxes and people considerations: Sustainable supply chains demand a holistic approach that prioritises responsible talent management and navigates the rapidly evolving legislative landscape. Ongoing global transformations are significantly impacting how, where, and when organisations source talent, increasing the complexity of remaining compliant which is overthrowing traditional recruitment models. Ethical recruitment practices, ensuring fair wages and safe working conditions across all locations, are essential for maintaining a positive brand image and avoiding reputational risks. Compliance with international labour standards and local regulations is crucial.

While climate goals can drive change, tax analysis should inform the how. For instance, where multiple jurisdictions are viable for green investment, tax efficiency, compliance complexity and incentives may all influence the final choice of a business.

Tax professionals are perfectly positioned to help translate sustainability strategy into efficient, resilient and compliant operations. By embedding themselves in the decision-making process, they can guide their organisations, navigating the risks and seizing the opportunities.

Take-aways and next steps

Among our clients, we’re seeing many organisations appointing senior leaders specifically responsible for the intersection of tax and sustainability.

It’s reflecting a growing recognition that tax teams play a central role in understanding regulatory compliance, shaping operational resilience and navigating the cost of decarbonisation, factoring in both carbon pricing and available grants and incentives.

This senior role – whether formalised or not – is essential. From early engagement in grant and incentive discussions to guiding indirect tax compliance on environmental measures, it needs someone who can work across business areas with the agency to own this.

Strengthening data capabilities is also crucial. Businesses must think about their strategies for collecting and verifying the data needed for CBAM, EUDR and other regulations. KPIs and data obligations could also be embedded into supplier contracts.

Tax teams have a crucial role to play in enabling sustainable supply chains, with full implementation of EU CBAM coming into effect in just a few months, UK CBAM following in 2027, the due diligence requirements that EUDR will introduce and the continued focus on resilient supply chains, says Zoe Hawes, Director in our Indirect Tax team. “Understanding your supply chain in more detail, leveraging customs data, is a great starting point. Tax and customs teams can help provide full visibility of supply chains and share business insights from granular compliance data."

“The funding landscape is complex and at times difficult to navigate. It is also continuously in flex as it is used to respond to global trends, opportunities and threats, such as decarbonisation and the increased need for supply chain resilience. Planning and systematic analysis of opportunities in critical to being able to leverage available funding mechanisms, which can only be achieved through close collaboration between tax teams, the wider finance function, and specialist supply chain teams.” Maciej van der Steen, Director, Global Investment and Innovation Incentives, Deloitte UK

How Deloitte can help

Our tax experts can offer a range of support to help businesses understand sustainability requirements and opportunities. This includes supply chain assessments, regulatory impact analysis and assistance with identifying relevant grants and incentives. Get in touch to find out more.