Stora Enso's operations generate value through taxes for governments around the world. In 2015, Stora Enso paid more than EUR 1 billion to public sectors including EUR 792 million in collected taxes.
Stora Enso is committed to ensure that the group observes all applicable tax laws, rules and regulations in all jurisdictions where it conducts business activities. Stora Enso follows international transfer pricing guidelines and local legislation. In addition to our legal and regulatory requirements, our tax principles comply with our values, highlighting the importance of 'doing what's right'. Furthermore we seek to ensure that our tax strategy is aligned with our business and commercial strategy. We only undertake tax planning that is duly aligned to economic activity. This means that all tax decisions are made in response to commercial activity, and tax is only one of many factors that are taken into account when making business decisions.
We respond to tax incentives and exemptions granted by governments on reasonable grounds and have operations in countries that offer favourable tax treatments, where their location is also justified by sound commercial consideration.
Stora Enso has operations in the following locations that offer favourable tax treatments:
- Our joint operation Montes del Plata operates a pulp mill in a Special Economic Zone in Uruguay.
- Stora Enso's two forestry companies in Guangxi, China are entitled to exemption from corporate income tax and value added tax on their sales, and our industrial company will benefit from reduced tax rates during the first 10 years of operation.
- Stora Enso owns a dormant company in Luxembourg with equity of EUR 6 million, which is a remnant of a former legal structure.
- During 2015 we sold off our 51% stake in a holding company in the British Virgin Islands, which had become part of the Group's ownership structure with our earlier acquisition of the Inpac International packaging company.
- We conduct business, mainly sales services, in the United Arab Emirates, Singapore and Hong Kong.
- For logistical and operational reasons, pulp from our joint operations in Brazil and Uruguay is traded via a pulp sourcing and marketing company based in the Netherlands.
1. Spotlight on taxes in Finland
Stora Enso did not pay corporate income tax (CIT) in Finland in 2015 because of tax losses carried forward from previous years. The tax losses of EUR 887 million carried forward in Finland are the result of a number of factors including high closure and restructuring costs incurred over the past few years. However, as an employer we paid EUR 89 million employment taxes and our business triggered operational tax payments of EUR 20 million. For further information, please see Note 9 in the Financial Report 2015.
2. Taxes in China
The sales of self-produced plantation products of our two forestry companies in Guangxi, China are entitled to CIT and Value added tax (VAT) exemption. As a consequence, input VAT paid on the purchase of inventories, which relate to those tax exempt sales, is not creditable. Our related industrial entity in Beihai, Guangxi, is under construction and paid no CIT or VAT in 2015. The Beihai Mill is entitled to a reduced Corporate Income Tax rate of 15% for the first 5 years from the year when it obtains the first operating revenue and 20% for the following 5 years instead of the application of the statutory tax rate of 25%.
3. Taxes in Uruguay
Montes del Plata runs a pulp mill in a Special Economic Zone, which exempts the company from several taxes as e.g. Corporate Income Tax and withholding taxes, Net Wealth Tax, VAT, Customs duties and import taxes. The Uruguayan government has introduced this tax incentive to stimulate the growth in economy and the employment rate. As the government's intention matches with our business plan, it is fair and in alignment with legislation and our values to take the advantage of the special tax status. However, not all operations in Montes del Plata are covered by the tax exemption and among others, we paid e.g. property taxes and employment taxes in Uruguay.
4. Companies in low tax jurisdictions
Stora Enso owns a dormant company in Luxembourg with equity of EUR 6 million. The company is a remnant of a former legal structure.
Stora Enso owns companies in United Arab Emirates, Singapore and Hong Kong, which are performing operational activities, mainly sales services in their specific regions. The profits of those companies are not or only low taxed in their countries of tax residence. All companies that are not taxed or only taxed on a low level are reported as CFC entities (controlled foreign companies) in Stora Enso Oyj's tax return if they qualify as CFC companies according to Finnish tax law. In that case their income is taxed as a part of Stora Enso Oyj's taxable income in Finland. Currently Stora Enso has tax loss carry forwards in Finland and therefore no cash tax is payable on the reported corporate taxable income, including possible CFC income.
5. Pulp from Brazil and Uruguay supplied via a trading company in the Netherlands
As Amsterdam is an attractive location from logistical point of view, pulp from our joint operations Veracel in Brazil and Montes del Plata in Uruguay is traded via our pulp sourcing and marketing company based in the Netherlands. Pulp from Montes del Plata is sold to external customers. The pulp produced in Veracel is supplied predominantly to our mills in Europe. Our Dutch company invoices Veracel pulp to our mills at a price which is similar to the price unrelated parties would pay under comparable conditions. This ensures that our pulp consuming mills pay a market price for the pulp and we do not artificially influence their profitability. The supplies from Veracel and Montes del Plata to Stora Enso Amsterdam are priced in accordance with the Brazilian and Uruguayan tax legislation.
6. Example for wider economic impact
In connection with our transformation from a traditional paper and board producer to a global renewable materials growth company, we have converted our fine paper machine in Varkaus, Finland, to produce kraftliner. This machine conversion enabled us to respond to two current market trends: declining global demand for paper, and an increasing global market for renewable packaging board. After this EUR 110 million investment (for which Stora Enso received EUR 7 million investment subsidies), Stora Enso will be able to continue offering approximately 300 direct jobs. It also means that Stora Enso will continue to make payments related to employment – payroll taxes and social security charges – amounting to approximately EUR 12 million every year, as well as annual operational tax payments of approximately EUR 11 million.
Stora Enso is also investing EUR 43 million in a new production line for wooden building elements (LVL) located in Varkaus, Finland, scheduled to start up in the second quarter of 2016. The investment will be subsidised by approximately EUR 5 million. Once the mill runs at full capacity, this investment will create 80 new jobs at Stora Enso, and 150 jobs overall, including employment with providers of wood procurement and logistics services.
After these investments are completed, Varkaus Mill's new lines will annually need about two million cubic metres of wood, mainly sourced from the surrounding region. In addition to benefiting the public sector through taxes, the investments will stimulate the local economy by promoting a positive investment climate and creating jobs and value along local supply chains. In general, new jobs in industrial plants also indirectly create several times as many more jobs in the region.