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UPM Annual Report 2016

UPM Annual Report 2016



In brief







UPM’s corporate and operational structure means that UPM reports

and pays its corporate income taxes mainly in the production countries

and in the countries where innovations are being developed.

In the countries where UPM’s business areas have significant value-

adding operations in particular, UPM is also a major taxpayer of both

income taxes and taxes applied to various production inputs and

outputs. In addition to these taxes, the local impact is augmented by

the taxes paid to the local municipalities by UPM’s employees as well

as by those indirectly employed by UPM to perform various services

at the production sites.

About UPM’s tax policy

UPM’s tax policy is supported by internal instructions, benchmark

analysis of best practices as well as by related internal controls.

Tax matters at UPM are managed by UPM’s own tax function, which

is complemented by third-party tax services in order to comply with

local tax reporting and filings among others.

The Audit Committee is responsible for the supervision of tax risk

UPM aims to develop tax reporting that meets the expectations

of various stakeholders and fulfils the various statutory reporting

requirements. During 2016, UPMhas prepared for the country-by-

country reporting on taxes to tax authorities in accordance with the

OECD Guidelines.

During 2016, UPM changed its corporate structure in Finland to

better match its current business structure. Three new subsidiaries

were established in Finland: UPMEnergy Oy, UPM Specialty Papers Oy

and UPMPaper ENA Oy. The personnel and assets of UPMEnergy,

UPM Specialty Papers and UPMPaper ENA in Finland were transferred

to the new companies on 1 July 2016. UPMRaflatac and UPMPlywood

were already operating as subsidiaries in Finland while UPMBiorefining

remained part of the UPM-Kymmene Corporation.

In 2016, UPM’s corporate income taxes in Finland are estimated

to be approximately EUR 138 million in total (EUR 83 million), of which

subsidiaries report and pay approximately EUR 56 million (EUR 22

million), and the remaining approximately EUR 82 million (EUR 61

million) is reported and paid by UPM-Kymmene Corporation.

Taxation at various levels

of the value chain

Taxation of end products varies by business area

In addition to the taxes on income, UPM’s various production inputs

and outputs are also subject to taxation. These are typically local taxes in

the production countries (for example energy taxes, real estate/land and

property taxes) or in the location of customers or a final consumption

(for example value added taxes, customs and duties or various excise

taxes). These taxes may either be paid by UPM or collected by UPM

from the customers and remitted to the local authorities.

Due to significant production and consumption of mainly renewable

energy, energy taxation is especially relevant for UPM in various

countries. The energy taxation refers to excise taxes of liquid fuels as

well as electricity and certain other fuels. Energy taxation is subject

to detailed regulation not only at country level but also at EU level.

The majority of UPM’s own electricity production is hydropower or

combined heat and power production at mill sites, where the majority

of the fuels used in energy production are from renewable sources.

The electricity produced by UPM is subject to the electricity taxation

regardless of which sources are used.

The renewable diesel, UPMBioVerno which is produced from crude

tall oil, a residue of the pulp production, is also subject to energy

taxation. The taxes are charged by fuel distributors to their customers

at service stations. The environmental goals of taxation of transport fuels

directly impact the business. One of the main goals of the energy taxation

In accordance with UPM’s tax policy, UPM pays corporate income taxes in the countries

where added value is created and profit is generated. Taxes are paid in accordance

with the local tax legislation and regulations of the country in question.

management as part of UPM’s risk management processes. UPM’s

internal control and risk management functions review the tax risks

regularly and update the control framework together with the tax


UPM aims to co-operate transparently and proactively with tax

authorities and other important interest groups regarding taxation.

UPM’s tax policy is available on the corporate website under

Corporate income taxes and

property taxes paid by country

According to UPM’s tax policy, the location of UPM group entities in

different countries is driven by business reasons, such as the location

of customers, suppliers, rawmaterials, know-how and other similar


Corporate income taxes and property taxes paid by UPM are

reported by country (see table). The tax figures shown in the country

analysis include corporate tax payments and property taxes.

UPM’s value creation also

generates tax revenues



According to a study made by the Research Institute of

the Finnish Economy (Etla), UPM is the company producing

the most added value in Finland when taking into account

the added value produced by companies themselves and

the indirect added value resulting from purchases.

UPM’s share of the GDP was 2.0% in 2015. The added

value produced by UPM in Finland totalled EUR 1.5 billion

and the added value generated by the multiplier effects

resulting from purchases as much as EUR 2.6 billion. UPM’s

supply chain in Finland includes 10,000 companies and

service providers, and, for example, the company’s annual

wood sourcing spend is approximately EUR 850 million.

“Forest industry companies mainly purchase their wood

raw material from Finland, which means that the added

value from wood trade, felling and transport is created in

Finland,” says Jyrki Ali-Yrkkö, Deputy CEO at Etlatieto Oy.

Added value is the difference between the product’s final

selling price and the purchase price paid for raw materials,

energy, services and other intermediate products to

manufacture the product.

“The share of domestic added value is the largest in forest

and paper industry as well as in the food industry because

they use more domestic raw materials and intermediate

products than other industries.”

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is to globally limit and mitigate climate change and therefore the

regulation has developed in favour of advanced biofuels.

Consequently, the energy taxes of transport fuels from renewable

sources like UPMBioVerno are lower than those of fossil fuels due

to their lower carbon dioxide emissions. Therefore the fuel tax of

renewable diesel UPMBioVerno is 30–50% lower than that of fossil

diesel in the main market in Finland.

Taxation of raw materials and other inputs

UPM is also a significant electricity consumer, especially for pulp

and paper production. All of the electricity consumed by UPM,

including the electricity that has been self-produced from renewable

sources, is subject to electricity taxes. Most of the fuels used in the

production processes are also subject to energy taxes, though there

are different tax rates or even exemptions depending on the type of


Additionally, taxation of transport fuels is also a significant form

of energy taxation for UPM in businesses other than UPMBiofuels.

UPMpays significant amounts of energy taxes on fuels as part of

logistics costs, especially on road transportation.

Compensation of paid energy taxes

for global cost-competitiveness

Within the EU, the energy taxation legislation allows member

states to compensate paid taxes or apply lower tax rates for industrial

production or activities which are considered energy intensive.

Many of the main UPMproduction countries, e.g. Finland and

Germany, apply such tax reliefs because the level of energy taxation

has increased significantly in recent years.

For example, in Finland, electricity is taxed at a lower tax rate

when used in industrial production. Energy-intensive industries

get a retroactive refund of paid energy taxes based on a separate

application, if the amount of energy taxes paid exceeds a certain

threshold dependent on the company’s added value.

A similar retroactive energy tax refund can be applied for

in Austria while in the UK and France, relief is granted upfront

in a form of lower tax rates for energy-intensive industrial users

that fulfil the requirements. In Germany, there are certain energy

tax reliefs that companies may apply for in advance and some that

are applied for retroactively if the company fulfils various criteria

to be eligible for the reliefs. Like the entire field of energy taxation,

energy tax reliefs are subject to detailed regulation not only at

country level but also at EU level.

Regarding energy production, UPM benefits from some subsidy

schemes and feed-in tariffs related to renewable energy production,

such as EEG (Erneuerbare Energien Gesetz) in Germany and

operating aid for wood fuel power plants in Finland.

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 created

Economic value distributed

Operating costs



9,812 Employee wages and benefits


Income from sale of assets

99 Payments to providers of loans


Income from financial investments

10 Dividend distribution


Other income

81 Corporate income taxes paid

and property taxes







Economic value retained 1,027















United States



United Kingdom









Other countries