Taxation has been identified by our stakeholders as a material issue for Nestlé. We view the tax we pay as part of both compliance (business ethics) and Creating Shared Value in the countries where we operate. We believe it is good practice to disclose information about our tax management principles and key tax indicators and contributions.
Nestlé Group Tax Management Principles and Foundations of Group Tax Strategy
Over the last years, we have developed 10 Principles of Tax Management and five Foundations of our long-term Group Tax Strategy. They are based on the recognition that Tax is an integral element of our overall corporate social responsibility, as well as on the fundamental objective of tax compliance and of legitimate and responsible planning. Those Principles and Foundations (pdf, 192Kb) are in line with the Nestlé Corporate Business Principles and are cascaded down to, and monitored across, our Tax Organization, both at Group and market levels.
Effective tax rate and tax payments
In 2016, the Nestlé Group incurred CHF 4.413 billion in corporate taxes worldwide on our group consolidated profit. This corresponds to a 35.2% effective tax rate on our worldwide profits. By comparison in 2015, Nestlé had a 28% effective tax rate worldwide, while incurring an amount of CHF 3.305 billion in corporate taxes. The increase in 2016 is mainly due to prior year taxes and a one-time deferred tax charge related to the reduction of corporate tax rate in the Canton of Vaud, Switzerland (where we have our worldwide Headquarters and our main Swiss companies), which was enacted in 2016 and will be effective as from January 2019. Excluding exceptional items, the underlying effective tax rate in 2016 is in line with our tax rate in 2015 and previous years.
Nestlé also pays and collects for governments various taxes through its transactions with suppliers and customers, as well through our own operations across 197 countries.
After the closing of the year, we run a Group Tax Report on the Total Taxes that we bear and/or collect for governments in the main countries where we operate. This Report covers all direct and indirect taxes, on profit (corporate income tax, withholding taxes, etc.), properties (real estate taxes, stamp taxes), employment (social security charges, employee’s salary taxes), transactions (customs, VAT, GST, consumption taxes, excise taxes) and environment (energy taxes, food taxes, green taxes). Therefore, we do not have yet the data for 2016 concerning all indirect taxes, which will be disclosed in our 2017 report.
In 2015, Nestlé collected and paid around CHF 14.7 billion of taxes to the governments in its largest 53 markets, including CHF 6.4 billion that were incurred and borne as costs by Nestlé. Those markets represent nearly the totality of the Group Net Sales.
If we analyse the taxes borne by type, 48% of the CHF 6.4 billion was taxes on profit, 30% taxes on employment, 17% taxes on transactions, 3% taxes on properties and 2% taxes on environment.
If we analyse the taxes borne by geography, 37% of the CHF 6.4 billion was incurred in our EMENA Zone, 36% in our Americas Zone, and 27% in our AOA Zone. 73% of that amount was borne in our top 10 countries.
The remaining CHF 8.3 billion of taxes were taxes collected by Nestlé through our operations and paid to governments.
Finally, we had a Group “VAT Throughput” of CHF 22,500 billion, i.e. for the total of all VAT receivable (on customers) and VAT payable (to suppliers), as an indicator of the volume of VAT (and similar indirect consumption based taxes), generated and managed by Nestlé worldwide.
OECD “Base Erosion and Profit Shifting” (BEPS)
In compliance with the new OECD BEPS reports and recommendations, we have proactively worked on:
- Developing and testing a Group Tax Report for complying with the new OECD “Country by Country Reporting” (CbC) that we will run in the coming months with the 2016 financial statements. We will therefore be ready to issue the Nestlé CbC to Swiss authorities and to have it exchanged with other countries based on tax treaties and exchange of information.
- Improving our Nestlé Group Transfer Pricing documentation in order to meet the requirements for the new OECD “Master File” and all “Local Files” for all countries where we operate.
- Monitoring new tax legislations in all countries where we operate, which are implementing the OECD BEPS recommendations, and reviewing our Group transfer pricing policies and transactions accordingly to ensure that we proactively meet the new standards.
Tax audits and contingencies
Given our large operations in most countries where we operate and pay taxes, we are subject to regular audits by tax authorities and we actively and openly cooperate in those audits. We are exposed to uncertainties about tax treatments and claims by tax authorities for various activities, on both direct and indirect taxes, including:
- Acceptability of (and compliance with) Group transfer pricing guidelines,
- Deductibility of expenses (particularly IG expenses) under local tax laws,
- Access to incentives and accelerated deductions granted under tax laws,
- Lack of clarity or differences of interpretation of the same tax laws (by the Group and the tax authority or between different departments within the tax authorities)
As part of the year end closing, we run a Group Tax Risk report to identify and assess all direct and indirect tax risks and to validate the adequateness of tax contingencies and provisions, together with our Statutory Auditor.
Over the years, the average period that corporate tax filings remained open in the Nestlé main countries are between 4 to 5 years, with some countries having longer period of open years due to backlog in tax audit procedures. As a matter of policy and effective compliance, we prefer to be as current as possible with tax audits, working cooperatively with tax authorities, in order to reduce the number of open years.
Our major tax audits in 2016 have been in Mexico, Italy, USA, Germany, France, Brazil, and the Philippines.