We believe it is good practice to voluntarily disclose information about our tax management and our tax contributions, as provided in the following sections.
Principles of Responsible & Sustainable Tax Management & Strategy
Over the last three years, we have developed 10 Principles of Responsible & Sustainable Tax Management and four Foundations of our long-term Group Tax Strategy.
These principles and foundations 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 responsible and sustainable planning.
Those Principles and Foundations are in line with our Corporate Business Principles and are cascaded down to, and monitored across, our Tax Organization, both at Group and Market levels.
Our?10 Tax Management Principles
In line with Nestlé Corporate Business Principles, our tax policy and objective are to comply in good faith with the letter and the spirit of all applicable tax laws and obligations in all countries where we operate, across all direct and indirect taxes, as a company and employer, as well as with international treaties and international tax guidelines (OECD).
- As our group operates and pays taxes in more than 130 countries with very different and fast changing tax legislations and interpretations, we monitor, adjust and improve our tax compliance.
- We identify, disclose and fix proactively any compliance gap or error that could happen, or adjustments that could arise upon tax audits and settlements.
We recognize that all taxes that we pay and collect for governments are an integral element of our corporate social responsibility and therefore of Nestlé’s Creating Shared Value. We publicly disclose:
- Our Group Effective Tax Rate.
- Our total tax contributions at Group and Zone levels and between Developed and Emerging countries.
- Our main tax exposures and tax audits1.
We pay the right amount of taxes in the right country.
We do not pay taxes that are not legally due or that are claimed based on unprincipled or unjustified basis.
We pay our taxes locally, in the countries where our organizations and operations are located:
- Where our actual economic and business activities take place,
- Where the business value is created, and
- In accordance with the way we actually operate our businesses.
We take tax positions that are defendable under full disclosure.
- We do not engage in tax evasion, artificial or high-risk transactions.
- We do not adopt tax schemes, based on form without commercial substance.
- We do not use offshore entities that lack business purpose and substance.
- We do not use hybrid instruments and entities that result in tax avoidance, double deduction or double no taxation.
We engage in open and respectful dialogue, cooperation and transparency with tax authorities, whenever possible and reciprocal.
- We use appropriate mechanisms to clear in advance the tax impact of major transactions with relevant tax authorities.
- When appropriate, we may engage constructively in expressing our views on the formulation of tax legislation and regulations.
We defend ourselves and take all actions available, whenever we have a strong business and tax position.
We seek to anticipate and resolve disputes without recourse to courts wherever possible.
We protect the reputation of the company.
We consider the interests of key stakeholders, such as shareholders, employees, consumers, customers, authorities and the communities where we operate.
We develop and improve the efficiency of our Tax Organization:
- In terms of adequate personnel, resources, up-to-date expertise, training and systems, and
- By developing tax awareness across Nestlé functions and businesses.
We maintain and operate our tax affairs:
- Within a strong Tax Governance, Reporting & Control Framework, Policies and Guidelines, and
- In accordance with the Group Tax Strategy agreed by the Group Chief Financial Officer and the Executive Board, as well as with the Board and its Committees as applicable.
Foundations of our strategy
We have a fiduciary duty vis-à-vis our shareholders to manage and plan our total tax costs of doing business in a responsible and sustainable way:
- In compliance with laws, the Nestlé Corporate Business Principles and the above Tax Management Principles, and
- Taking into account potential impacts on stakeholders and on our reputation.
Our Tax Organization, as a business partner function within Finance & Control, aims to create and protect shareholders’ value and minimize tax risks through proactive tax management of our business operations and transactions, together with the business management and other functions:
- Value creation is about managing responsibly and sustainably our total tax costs of doing business within clear risk parameters and in line with the Group business operations and strategies.
- It is not about ‘tax minimisation’ or ‘tax optimisation’ for the sake of it.
- We do not have any performance objective (KPI) based on effective tax rates or tax payments.
We do responsible and sustainable, business-driven, tax planning.
- Analyzing and managing the tax impacts of current and future business operations and transactions.
- Based on genuine business rationale and with a long-term view of sustainability and predictability.
- In the areas of the Group’s business models, its supply and value chains, its structure, its organizations, its assets, its investments and its financing.
- By claiming tax benefits, incentives and low tax rates available under applicable laws, as long as they are justified legally and from an economic business standpoint.
Our Transfer Pricing policy aims to reflect adequately the allocation of profits among countries and our subsidiaries.
- Based on their economic and value contribution (functions, decision making, assets, risks).
- Under market conditions, in line with the ‘arms’ length’ principle and in compliance with local and international laws, including the new OECD ‘Base Erosion & Profit Shifting’ Action Reports.
- In a consistent and symmetric way across areas, activities and countries, while recognizing differences in transfer pricing legislation and requirements in some countries and differences in business situations, if any.
- That we disclose and explain under all applicable transfer pricing documentation requirements, including the OECD ‘Master File’ and ‘Local Files’, as well as the ‘Country-by-Country Reporting’, that we provide to all qualifying countries through the Swiss Tax Administration.
- While recognizing that the Nestlé Group is predominantly decentralised in terms of its structure, organization and operations, yet with globally and regionally managed businesses and functions located in Switzerland and other countries.
Group Tax Control Framework
For many years, we have put in place a Group Tax Reporting, within the Group Consolidation Reporting System, with a set of tax packages that every Nestlé Market has to comply and provide.
Those tax packages allow to report and consolidate key tax data on corporate taxes, effective tax rates reconciliation, total tax contribution (all direct and indirect taxes paid and collected), tax audit risks and tax reserves, country-by-country reporting, as well on our tax organization.
Nestlé has tax teams in the key markets who are in charge of supporting the business and taking care of compliance with local tax regulations.
In 2018, as part of this Tax Control Framework, we have implemented a new internal tax certification by which Nestlé Markets have to certify at year end that they are compliant on the following key points.
- They understand and meet all the Principles of Tax Management.
- They meet all the tax obligations, filed all tax returns and pays all taxes on time, both direct and indirect.
- They meet all obligations related to transfer pricing, including documentation.
- They comply with all tax accounting and reporting obligations.
Country-by-Country Reporting (CbCR)
In compliance with the OECD ‘BEPS’ Actions, Nestlé prepares the Country-by-Country report (CbCR) for its entire group and provides it to the Swiss Tax authorities. Swiss Tax authorities share the Nestlé CbCR with countries that have signed agreements allowing for that exchange.
The Nestlé CbCR is therefore available to all the countries where tax authorities have agreed to the standards developed by the OECD.
We actively participate in a few initiatives with other multinational companies that will support our journey with tax authorities and stakeholders towards improving tax governance and tax transparency.
Effective Tax Rate and Tax Payments
Effective Tax Rate
In 2018, the Nestlé Group incurred CHF 3.439 billion in corporate income taxes worldwide on our Group consolidated profit. This corresponds to a 26.5% effective tax rate on our worldwide profits. By comparison with 2017, Nestlé had a 29.3% effective tax rate worldwide, while incurring an amount of CHF 2.773 billion in corporate taxes. The decrease of the effective tax rate is mainly driven by the US tax reform.
The underlying tax rate, which excludes exceptional items, has decreased in 2018. The decrease is mostly due to the US tax reform.
The amount of income taxes paid by Nestlé in the world is stable. In 2018, income taxes paid amounted to CHF 3.623 billion (CHF 3.628 billion in 2017). The cash effective tax rate is 27.9% in 2018 (38.4% in 2017). The decrease is due to non-cash items (impairments) incurred in 2017.
Corporate Income Tax of
3.4 billion CHF
Nestlé also pays and collects for governments various taxes through its transactions with suppliers and customers, as well through our own operations across 130 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).
- Environment (energy taxes, food taxes, green taxes).
In 2017, Nestlé incurred and collected around CHF 15.4?billion of taxes to the governments in its largest markets. Those markets represent nearly the totality of the Group net sales.
This amount includes CHF 6.7 billion that were incurred and borne as costs by Nestlé. In addition, Nestlé collected taxes for CHF 8.7?billion.
Total Tax Contributions
of 15.4?billion CHF
|Taxes on||Taxes borne (billion CHF)||Taxes collected (billion CHF)|
|Taxes by region|
Finally, we had a Group ‘VAT Throughput’ of CHF 21.5?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.
1 Consolidated Financial Statements of the Nestlé Group 2018 – p. 118 Provisions and contingencies.
VAT throughput CHF?21.5?billion