UPM annual report 2015

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UPM Annual Report 2015 UPM Annual Report 2015 47 48
contents
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.
Corporate income taxes paid
and property taxes by country
EURm 2015
Finland 131
Uruguay 10
China 9
Russia 8
United States 8
France 3
United Kingdom 2
Other countries 3
Germany -2
Total 172
direct economic value generated and distributed
by upm IN 2015 (EUR million)
Direct economic value created Economic value distributed
Operating costs –7,577
Sales 10,138 Employee wages and benefits –1,257
Income from sale of assets 69 Payments to providers of loans –39
Income from financial investments 7 Dividend distribution –373
Other income –7 Corporate income taxes paid and
property taxes
–172
10,207 –9,418
Particularly in the countries where UPM’s
business areas have significant value-adding
operations, the company is a major taxpayer
of both direct taxes (for example corporate
income tax, real estate/property tax) and
indirect taxes (for example value added tax).
UPMhas worked systematically to
improve its profitability in all businesses.
UPM’s importance to tax revenue is especially
emphasised at the locations of production
sites. In addition to Finland, UPMhas major
investments in production in Uruguay, Ger-
many, China, the UK and the USA, for exam-
ple.
In Finland, UPMhas significant operations
through all of its six business areas as well as
research and development operations. Due to
these factors, UPM is also one of the biggest
tax payers in Finland.
In some countries, governments support
companies making significant investments,
for example by granting temporary operating
permits for special economic zones. In Uru-
guay, the government has granted UPM’s pulp
mill with a permit to operate in a special
economic zone. Therefore, UPM’s tax pay-
ments in Uruguay mainly concern real estate/
property taxes. In China, with regard to fine
paper production, UPM qualifies as a High-
tech enterprise with a reduced corporate
income tax rate of 15% instead of the standard
rate of 25%.
Corporate income taxes and property taxes
paid by UPM are reported by country (see
table on the left). In addition to these taxes
paid by UPM, the local impact is augmented
by the taxes paid to the local municipalities by
UPM’s employees as well as those indirectly
employed by UPM to perform various services
at the production sites.
About UPM’s tax policy
The main principles of UPM’s tax policy are:
• Compliance with relevant statutory legis-
lations and rules.
• Management of tax risks, both financial
and non-financial.
• Transparency of tax issues and overall
requirement of commercial rationale
concerning tax related transactions.
• Continuous enhancement of shareholder
value by aiming for efficient, optimum and
cost effective tax processes, business trans-
actions and structures.
UPMAudit Committee has reviewed the
company’s tax policy and the principles of tax
risk management during 2015.
UPM’s tax policy is available on the corpo-
rate website under
ance.
Corporate income taxes and
property taxes paid by country
The tax figures shown in the country analysis
include corporate tax payments and property
taxes.
The country analysis shows the corporate
income taxes paid by UPM business areas oper-
ating in that particular country. The corporate
income taxes paid are reported on a cash basis
and thus include some taxes concerning previ-
ous years as well, but exclude deferred taxes
because they may not be paid. Consequently,
in those countries where UPM’s companies are
using tax losses resulting from previous years
to offset the tax liability of the year in question,
such as Germany, there are no or only limited
corporate income taxes paid.
Real estate/property taxes that are reported
in the country analysis include various types of
taxes imposed on real estate, land and prop-
erty. For UPM, these taxes are also particularly
significant in the production countries due to
the operations requiring major investment in
production facilities, land areas and other real
estate and property. The scope, basis and tax
rates of the real estate/property taxes vary
significantly between countries. For example,
land, buildings or total net assets may be sub-
ject to these taxes, the tax rates may depend on
conditions such as purpose of use or location of
the immovable property, and the amount of tax
may be calculated based on variables such as
taxable values, historic values or balance sheet
values of the property.
Aligning the corporate legal structure
with the business structure in Finland
Currently in Finland most business areas have
their main operations in UPM-Kymmene Oyj,
the parent company of the UPMGroup, with
the exception of UPMRaflatac and UPMPly-
wood. These businesses have their Finnish
operations in UPMRaflatac Oy and UPM-
Kymmene Wood Oy.
In addition to production and sales opera-
tions, these subsidiaries perform certain R&D
activities and may also own subsidiaries out-
side of Finland. In 2016, similar subsidiary
structures are considered for other business
areas and/or units in Finland to align UPM’s
corporate legal structure with its current
business structure.
As a taxpayer, UPMhas already consoli-
dated the taxable income and corporate income
taxes of the Finnish group companies to the
parent company. Consequently, the corporate
income tax has been reported and paid by the
parent company UPM-Kymmene Oyj. While
not affecting UPM’s total tax payments in
Finland, the planned changes in corporate legal
structure, which aim to align this with the
UPM pays corporate income taxes
where added value is created
IN BRIEF STRATEGY BUSINESSES STAKEHOLDERS GOVERNANCE ACCOUNTS
Prosperity grows
in Uruguay’s forests
The forest industry’s investment projects have
been a key enabler of economic growth in
Uruguay. UPM’s success story is an excellent
example of how one industry spreads
prosperity across many sectors of society.
The economic impact of UPM on the Uruguayan
economy can be measured through its entire
production process starting from the breeding
of eucalyptus varieties up to logistics and
foreign trade.
According to a recent independent study, UPM’s
input in the value chain, together with that of
its service providers accounted for over 1% of
Uruguay’s GDP in 2014. The direct impact of
UPM Fray Bentos pulp mill represents more
than 3% of the country’s manufacturing
industry.
The majority of the inputs derive from the
production process while the remaining added
value can be attributed to employment,
salaries, exports and productivity.
The UPM Fray Bentos and UPM Forestal
Oriental directly generate approximately 560
jobs. At the same time, UPM’s suppliers employ
around 3,700 people directly through their
operations.
Consequently, these jobs generate salaries
as well as consumption, which results new jobs.
The employment in various sectors linked to
UPM’s activity in Uruguay amounts to more
than 1,700 jobs.
Direct, indirect and induced UPM salaries
exceeded USD 170 million, which represents
approximately 30% of the total added value
generated by the company in Uruguay in 2014.
The total number of jobs generated by UPM
amounts to around 6,000, which accounts for
0.3% of the total employment generated in
the country.
Pulp is one of the four main export products
and UPM is Uruguay’s largest exporting
company. In 2014, UPM Fray Bentos exports
represented approximately 7.2% of total goods
exports.
The added value generated directly by the
activities of UPM Forestal Oriental represents
42% of the added value generated by the forest
sector in 2014. The majority of UPM Forestal
Oriental’s activities are located in rural areas
and support local livelihoods.
Read more:
In accordance with UPM’s tax
policy, UPM pays corporate
income taxes where added value
is created and profit generated.
Taxes are paid in accordance
with the local tax legislation and
regulations of the country in
question.
Due to UPM’s corporate and
operational structure, UPM reports
and pays its corporate income
taxes mainly in the production
countries and in the countries
where innovations are being
developed.
business structure, will divide UPM’s
corporate income tax payments between its
Finnish group companies.
In 2015, UPM’s corporate income taxes
in Finland are estimated to be approxi-
mately EUR 83 million in total, of which,
subsidiaries – mainly UPMRaflatac Oy
and UPM-Kymmene Wood Oy – report and
pay approximately EUR 22 million, and the
Read more:
remaining approx. EUR 61 million is
reported and paid by UPM-Kymmene
Oyj. Starting from 2015, the corporate
income tax of UPM-Kymmene Oyj is also
affected by the accelerated depreciations
of production investments concerning
Lappeenranta Biorefinery, which started
up in January 2015, and the expansion on
Kymi pulp mill, which was completed in
October 2015.
Economic value retained 789