UPM annual report 2014

UPM Annual Report 2014

CONTENTS

STAKEHOLDERS 31–44

UPM’s economic impact is significant

in the surrounding communities. The

company’s operations contribute to

local, regional and national economies

by generating economic benefits for

different stakeholder groups. The

related direct monetary flows indicate

the extent of added value globally.

DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED

BY UPM IN 2014 (EUR MILLION)

Economic value retained 909

Direct economic value created

Sales

9,868

Income from

sale of assets

158

Income from

financial investments

Other income

10,064

Economic value distributed

Operating costs

–7,413

Employee wages and benefits

–1,290

Payments to providers of loans

–51

Dividend distribution

–319

Corporate income taxes paid

and donations

–82

–9,155

UPM’S CORPORATE INCOME TAX IN FINLAND

REACHES NEARLY EUR 90 MILLION

UPM pays income tax where added value is created and profit generated. As a result,

especially in the countries where UPM’s different business areas have significant value-

adding operations, the company is also a major tax payer both of direct taxes (for example

corporate income tax, real estate tax) and indirect taxes (value added tax). In addition to

Finland, UPM has significant investments in production, for example in Uruguay, Germany,

China, the UK and the USA.

Corporate income tax particularly, which is based on the company’s taxable profits, is

directly proportional to the company’s profitability. UPM has worked systematically to

improve its profitability over the past few years, not only through increasing its cost

efficiency and making savings, but also by investing in new operations.

Corporate income tax is paid in accordance with local legislation. In some countries,

governments support companies making significant investments, for example by granting

temporary operating permits for special economic zones. In Uruguay, the government has

granted a permit to UPM’s pulp mill to operate in a free trade zone.

Finland’s corporate income tax rate decreased to 20% from the beginning of 2014. UPM’s

corporate income tax in Finland in 2014, estimated at nearly EUR 90 million, has been

calculated at the tax rate of 20%. In 2013, UPM’s corporate income tax in Finland was EUR

116 million at the tax rate of 24.5%.

UPM is one of Finland’s biggest tax payers

Despite the challenging operating environment, UPM has been able to improve its results

through its own actions year on year, and thus the amount of taxes paid has also increased.

Another reason for the large amount of taxes paid is that UPM has significant operations

in Finland through all of its six business areas. At the same time as some operations have

been reduced, new operations have been started and new service concepts have been

developed.

Investments have been made in production and service operations as well as in research

and development, which will contribute to the results in the future. For example, following

research work carried out in Finland, the production of biofuels has been started in

Lappeenranta.

Local investments and expertise can also be used in a completely new business environ-

ment, good examples of which include business premises and related services provided by

UPM to entrepreneurs in Kajaani and Kouvola, and the provision of forest management

services to an increasingly larger group of investors.

A certain amount of the corporate income tax paid by UPM in Finland is distributed to

regions where the company has significant operations, for example Lappeenranta, Jämsä,

Kouvola, Rauma and Tampere. In addition to this corporate income tax and real estate tax

paid by UPM, the taxes paid by the company’s own employees and indirectly-employed

contractors increase the tax revenue of the regions. The taxes are used to finance common

services and projects, with the purchasing power of UPM and its employees also adding

to the vitality of these regions.

Based on the standards of behaviour required

by UPM’s Code of Conduct, UPM’s tax policy

describes the main principles and guidelines of

taxation at UPM. UPM is committed to paying

all the relevant statutory indirect, direct and

other taxes and to file, report and disclose the

information required to comply with the pre-

vailing legal requirements and transparency

objectives of UPM.

The four main principles of UPM’s tax

policy, updated in 2014, are:

• Compliance with relevant statutory

legislations and rules.

• Management of tax risks, both financial

and non-financial.

• Transparency of tax issues and an overall

requirement of commercial rationale

concerning tax-related transactions.

• Continuous enhancement of shareholder

value by aiming for cost efficient and opti-

mal tax processes, business transactions and

structures.

UPM pays taxes where

value is created

All of UPM’s tax-relevant transactions are

based on commercial rationale. The location

of UPM’s group entities is driven by business

reasons, such as the location of customers,

suppliers, raw materials and know-how.

UPM recognises the importance of follow-

ing arm’s length standards as stated in the

OECD guidelines and in other standards.

Accordingly, transactions are taxed where

operations are performed and where value is

created.

Due to UPM’s corporate and operational

structure, UPM reports and pays its corporate

income taxes mainly in the production coun-

tries and in the countries where innovations

are being developed, in accordance with the

In addition to the enhanced relationship

with tax authorities, UPM has engaged in open

dialogue with various stakeholder groups inter-

ested in tax issues. UPM aims to develop tax

reporting that meets the expectations of various

stakeholders. UPM closely follows the develop-

ment of international and local guidelines and

recommendations for country-by-country

reporting, for example via OECD’s work on

tax reporting or other international corporate

responsibility initiatives as well as local

legislations.

UPM’s tax policy is available at

www.upm.com

local tax legislation and regulations of the

country in question.

UPM’s significance to local tax revenue

is especially emphasised at the locations of

production sites. In addition to the taxes paid

by UPM, such as corporate income taxes and

real estate taxes, the local impact is augmented

by the taxes paid to the local municipalities

by UPM’s employees as well as those indirectly

employed to perform various services at the

production sites.

Work on developing

tax transparency continues

UPM supports transparency of tax issues

through sufficient and regular reporting on

taxes and by open communication with

authorities and other relevant stakeholders.

UPM aims to achieve a transparent, proac-

tive and professional relationship with tax

authorities in all the countries where it operates.

An enhanced relationship or co-operative

compliance, available in some countries, is one

example of a more structured way of improving

co-operation with tax authorities. OECD recom-

mends an enhanced relationship between tax

authorities and large taxpayers to enable the

real-time sharing of information on significant

tax matters to make sure that the correct tax is

paid when it is due and to avoid unnecessary

compliance costs.

In Finland, UPM participates in a voluntary

pilot project of enhanced relationship with

the Finnish tax authority, the Large Taxpayer’s

Office.

In 2014, the enhanced relationship started

with so-called compliance scans that included a

review of UPM’s current tax control framework

concerning all taxes supervised by the Large

Taxpayer’s Office. Through the pilot project,

UPM aims to achieve efficiency, cost savings

and certainty around tax issues in the long term.

UPM’s tax policy

promotes

compliance, risk management,

transparency and efficiency