Tax, particularly international tax, is a key issue for us, our stakeholders and other interested parties.
The tax we pay is an important part of our wider economic and social impact and plays a key role in the development of the countries where we operate. We regard it as a critical element of our commitment to grow in a sustainable, responsible and socially inclusive way. Find out more about how we’re Supporting sustainable development (PDF 650.54 KB) through our tax contributions.
Our Code of Business Principles
Our Code sets the standards we live by
Our Code of Business Principles (PDF 6.07 MB) sets out the standards of behaviour we expect all employees to adhere to. This is no different when it comes to taxation. Tax evasion is illegal. We have a clear responsibility to comply in full with the laws in the countries in which we operate. We also choose to do this by respecting not only the letter of the law, but also the underlying tax policy intent.
We need to square our responsibilities as a co-operative, compliant taxpayer in each country where we operate, with the need to support competitive business growth. We must serve all our stakeholders, including investors, suppliers and employees. Sometimes this means that the total tax we pay in a particular country will decrease due to changes in our business model. For example, a decision to close a factory in a certain country would result in a change to the amount – and the jurisdiction – of the tax paid.
These are important business decisions taken to ensure our future competitiveness. We recognise that they sometimes negatively impact a country’s tax revenue. However, without taking these decisions the overall tax raising potential of our business would decrease.
Building trust through transparency
Rebuilding trust in the global corporate tax system is vital. When the public loses trust in that system, the relationship between corporates and society is damaged, which is good for neither.
Graeme Pitkethly, Unilever CFO
Addressing public concerns that some multinationals are not paying their fair share of tax, requires technical international tax reforms and better efforts to improve public understanding and awareness. We think that providing user-friendly information about our corporate tax position to a broad range of stakeholders plays an important role in improving transparency and public trust.
We actively support the OECD international tax reform work on Base Erosion and Profit Shifting (BEPS) including Pillars 1 and 2. As we operate in a global competitive environment, we urge tax policymakers to implement international tax reform in a coherent, co-ordinated way so that there is a level playing field and the risk of paying tax twice on the same income is minimised.
Our tax strategy
Centralising parts of our business means we can offer consumers innovative products quickly. By bringing together activities in one location, we create efficiencies and economies of scale, which create value for our consumers and our shareholders. As a result, there are many transactions between Unilever Group companies, and the transfer pricing for these transactions must reflect an arm’s-length or market price. Our pricing is driven by the activities undertaken and the value created in each part of our business in accordance with the OECD transfer pricing guidelines.
Paying the right amount of tax, at the right time, and in the right countries
Corporate income tax is payable on the profits made by the companies in the Unilever Group. Profits are calculated after deducting business expenses and legislated tax reliefs – such as depreciation on equipment and R&D incentives – as provided by the tax laws in the countries where we operate.
We aim to pay the right amount of tax at the right time, on the profits we make, and in the countries where we create the value that generates those profits.
This means that we must:
Respect the tax laws applicable in each country, including not only the letter of the law but the tax policy intent underlying the tax law
Understand how and where the different companies in the Unilever Group contribute to creating value, and ensure that our transfer prices – the prices paid on transactions between companies in the Unilever Group – properly reflect where value is created
Prepare and file all tax returns in the form specified and at the time required
Prepare and retain the documentation required by the tax laws or which will be needed to answer any questions raised by tax auditors
Employ appropriately qualified and trained tax professionals with the right levels of tax expertise and understanding of Unilever’s business and tax principles
As the tax laws are not always clear, getting this right often requires careful judgement. This must be consistently applied across around 400 corporate income tax returns that the Unilever Group files annually.
400Corporate income tax returns completed by Unilever every year
The tax authorities in the countries where we operate may not agree with some of the judgements we make. This happens most often in the area of transfer pricing. There can be different views from different jurisdictions’ tax authorities of where value is created, and therefore which country has the right to tax the profits.
Our biggest challenge is to ensure that we pay tax only once on the profits and that we can recover centrally incurred business expenses from Group companies. Unfortunately, the current international system for resolving tax disputes often falls short of what is needed.
In line with our tax principles, we are transparent about our approach to tax. Here we publish a full list of tax paid and tax contributions by country of operation for the 2022 reporting period.
The foundations of our tax strategy
Our tax principles, which have been approved by the Board, are a clear articulation of our tax strategy and governance framework. In those cases where judgements are required, they illustrate our perspective on tax risk.
1. Compliance
We act at all times in accordance with all applicable laws and are guided by relevant international standards (for example OECD Guidelines). We aim to comply with the spirit as well as the letter of the law.
2. Transparency
We are transparent about our approach to tax. We regularly put forward understandable, timely and transparent communication about our tax policy and total tax payments.
3. Transfer pricing
We aim to pay an appropriate amount of tax according to where value is created within the normal course of commercial activity. Any transfer pricing is always calculated using the ‘arm’s-length’ principle.
Our approach to transfer pricing
We try to obtain certainty. Firstly, by ensuring that our transfer pricing policies are consistently applied across the Group. Secondly, by entering into Advance Pricing Agreements with the relevant country tax authorities, based on full disclosure of all relevant information. We want to pay all the tax that is due, we just don’t want to pay tax twice on the same profits.
4. Structure
We do not use contrived or abnormal tax structures that are intended for tax avoidance, have no commercial substance, and do not meet the spirit of local or international law.
5. Tax havens
Secrecy jurisdictions, or so-called ‘tax havens’, are not used for tax avoidance.
Tax havens
There is no universally agreed list of tax havens, so we define this as meaning jurisdictions with no or low taxes. Based on this definition as at 31 December 2022, we had seven companies in the Unilever Group located in countries identified as tax havens: five in the United Arab Emirates (UAE), one in Jersey and one in the Isle of Man.
We have an operating business and joint ventures in the UAE (including both a factory and sales operations). We note that although the UAE currently has no corporate income tax it plans to introduce it and we expect it to apply to our companies from 2024. The Jersey and Isle of Man companies are both holding companies which are UK tax resident and therefore subject to tax in the UK.
6. Tax rulings
We only seek rulings from tax authorities to confirm the applicable treatment, based on full disclosure of the relevant facts.
7. Relationships with governments
We respect the right of governments to determine their own tax structures, rates of tax and collection mechanisms.
8. Relationships with tax authorities
We seek to develop strong, mutually respectful relationships with national tax authorities, based on transparency and trust. Where countries have weak or poorly constructed fiscal regulation and/or institutions, we support work to help develop the capability of tax authorities and systems.
Our approach
We promote open, transparent working relationships with tax authorities and early engagement in advance of undertaking transactions and filing tax returns.
In the Netherlands, we engage with the Dutch tax authorities through regular meetings, calls and correspondence. This includes discussing the tax impacts of potential future events in advance. This constructive co-operation between Unilever and the Dutch tax authorities results in transparency as well as faster and greater clarity on Unilever’s positions and ensures working as much as possible in real time.
In the UK, we have an open and transparent relationship with HMRC (Her Majesty’s Revenue and Customs). We engage co-operatively with regular face-to-face meetings and calls. Any issues are discussed on a real-time basis, including pre-filing meetings in advance of filing our tax returns.
In Australia, we are a signatory to the Board of Taxation's Voluntary Tax Transparency Code. This aims to enhance the community’s understanding of the corporate sector’s compliance with Australia’s tax laws. It outlines a set of principles and minimum standards to guide the disclosure of tax information by businesses. Further information on the Code and its full Catalogue of Signatories is available from the Australian Board of Taxation.
Our open approach helps us with our goal of achieving certainty over tax positions. However, this approach is not always possible. In some developing countries, for example, we face significant challenges in reaching agreements. In some cases, we find regional and national tax authorities taking different views on the same issue.
As well as engaging with tax authorities directly, we also talk to them as part of trade bodies like the VNO (The Confederation of Netherlands Industry and Employers) in the Netherlands. We take part in working groups, such as those set up to engage on new legislation arising from BEPS including Pillars 1 and 2. We help tax authorities develop expertise and understanding of our industry. In partnership with the OECD Tax & Development team, we have run business sector knowledge sessions for tax authorities in Africa and Latin America.
9. Accountability & governance
We ensure that as a business, we have the mechanisms in place to adhere to the above principles and provide both relevant training and opportunities for employees to raise any issues of concern confidentially, consistent with the Unilever Code of Business Principles. We report annually to the Board on adherence to the Unilever tax principles.
In addition, the Board has delegated to the Audit Committee the review of tax strategy, updates on tax regulation and key tax challenges we are facing. The Audit Committee receives an annual update on the Group’s effective tax rate, tax provisions, key tax issues for the coming year, along with compliance with our tax principles.
We have a tax principles scorecard to assess whether material transactions or changes in the way we do business comply with our tax principles. The scorecard is completed by our Tax managers and reviewed by senior members of our Tax team. Material transactions must be scored against the various tax principles, and the transactions will not be approved unless they achieve a certain score. In 2022, a total of 33 (2021: 29) scorecards were completed.
Our tax team
Unilever’s Tax team is part of our Finance function, which reports to the Group Chief Financial Officer. Our Global Head of Tax & Treasury leads a senior team of around 95 people. They have specific geographic and technical responsibilities, including specialists in Transfer Pricing, Indirect Taxes and Employment Taxes. Advice is sought from external advisors on material transactions and whenever the necessary expertise is not available in-house.
The Tax function is organised on a global basis. This ensures we have globally consistent tax policies, strategies and processes, and can invest in the team’s continuing professional development. Most of our Tax team works with our operations in a country or region with only a few roles located at the centre, allowing the Tax team to stay closely connected to Unilever’s business and the tax developments in the country.
Tax function responsibilities & organisation
Tax evasion and the criminal facilitation of tax evasion is illegal. The UK introduced new legislation on 30 September 2017 called the Criminal Finance Act. Part III of the Act describes a Corporate Criminal Offence for the Failure to Prevent the Facilitation of Tax Evasion.
This applies automatically to a Corporation where an associated person (employee or third party) acting for or on behalf of the Corporation criminally facilitates tax evasion. Acting in this way is in clear contravention of Unilever’s Code of Business Principles. Doing so risks criminal prosecution of the individuals involved, as well as placing unnecessary risks on Unilever. We maintain a zero-tolerance approach to dealing with such behaviour.
We follow HMRC’s guidelines to continuously improve prevention procedures both in the UK and across Unilever. We continue to adopt reasonable prevention procedures, which are proportional to the risks inherent in our business.
Managing our tax risk
Exercising judgement on tax sensitive items consistently across the Unilever Group means our employees need a common understanding of Unilever’s perspective on tax risk. We’ve adopted a set of global tax principles covering areas such as transfer pricing, use of tax havens and relationships with tax authorities.
As a business, we’re subject to taxation in the many countries in which we operate. The tax legislation in these countries differs, is often complex and subject to interpretation by management and the government authorities. Recent developments in the international tax arena have increased the likelihood of changes to tax systems in the countries where we operate, and this creates added uncertainty.
Our risk appetite
We maintain a limited appetite for tax risk as evidenced by our tax principles where we ensure we comply with the spirit as well as the letter of the law and do not use any contrived or abnormal tax structures.
How we manage our tax risk
Risks are managed through our Tax Risk Framework. They are monitored through a web-based tool for collecting details on a quarterly basis of all our corporate income tax exposures and provisions. The tool has an approval process for any new provisions or changes to existing provisions. It also includes an Annual Compliance Checklist, in which the tax lead in the countries concerned confirms that all their statutory tax obligations have been met, their controls are operating effectively, and all tax positions are in compliance with our tax principles.
Our key countries complete a tax risk matrix mapping out the impact and likelihood of specific tax risks in their country, including potential changes in tax legislation, and the actions taken to mitigate the risks; the actions and their effectiveness are monitored on an ongoing basis. At the group level a similar risk matrix is maintained to identify and assess the impact of the key tax risks for the Group. Based on input from Tax Directors, the matrix is updated and reviewed twice a year to reflect any changes in the risk profile, discuss progress in respect of mitigating actions and agree the ongoing action plan for reducing risk.
Our key countries also complete, a tax temperature assessment, a traffic light risk assessment with short bullet points on the relevant factors, for example, the number of outstanding audits, and external factors such as the stability of the political system and judiciary process.
We monitor proposed changes in tax legislation and ensure these are taken into account when we consider our future business plans.
We centrally monitor the filing of all corporate income tax returns and related tax payments. A key way to manage tax exposure is to be as ‘current’ as possible in agreeing the final tax liability for the tax year with the tax authority. Accordingly, we monitor and seek to minimise the number of open tax years where final agreement has not yet been reached.
Our Tax Risk Framework
Our Tax Risk Framework sets out the key tax risks and the mitigating actions that we take to manage and monitor those risks. There are five key risk areas covered by the Tax Risk Framework – policy, governance & organisation, people, compliance & documentation, and reporting & risk management.
Examples of a risk and mitigating action for each of the five key risk areas:
Policy
Governance & Organisation
People
Compliance & Documentation
Reporting & Risk Management
Risk:
Transactions and behaviours not in line with Tax Principles
Risk:
Lack of right organisational structure to implement strategy
Risk:
Insufficient tax training
Risk:
Failure to comply with statutory obligations
Risk:
Tax positions not accurately reflected in reporting
Mitigating action:
Annual compliance confirmation and completion of scorecard for certain transactions
Mitigating action:
Organisational structure regularly reviewed by Tax Leadership Team
Mitigating action:
Regular global, regional and local training sessions, plus individual development plans
Mitigating action:
Annual compliance checklists plus online compliance tracking tool, supported by tax controls governing operational tax compliance
Mitigating action:
Online tool to collect and approve direct tax exposures and provisions
Tax in our Annual Report and Accounts
The Unilever Group consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
Unilever’s business generates considerable tax receipts for the governments in the countries in which we operate.
In addition to corporation taxes, we pay and collect numerous other taxes. These include employee taxes, sales taxes, customs duties and local transaction taxes. During 2022, we made global tax payments of €8.6 billion (2021: €7.2 billion) (our Total Tax Contribution). This comprised €4.4 billion of taxes borne by Unilever, and €4.2 billion of taxes collected from employees and customers on behalf of governments. ‘Other taxes’ include sustainability taxes, stamp duties (and equivalent), excise duty, service taxes, property taxes, local business taxes, social and educational taxes.
Total tax paid by type in 2022
Tax type
Tax paid in 2022 (€ million)
Corporate tax
2,807
Sales taxes
383
Customs duties
273
Employment taxes
585
Other taxes
325
Total tax borne
4,373
Corporate tax paid by region in 2022
Region
Tax paid in 2022 (€ million)
Asia Pacific/Africa
1,460
India
465
China
145
Indonesia
145
Other Asia Pacific/Africa
705
Americas
845
USA
439
Brazil
119
Mexico
80
Other Americas
206
Europe
502
Netherlands
206
United Kingdom
63
France
46
Other Europe
187
Note: the countries listed in bullets under the regions are the three largest tax payers by region.
There are a number of reasons why the corporate tax cash payments in a particular year will be different from the corporate tax charge in the financial statements, including:
Timing differences: Tax payments relating to a particular year’s profits will typically be due partly in the current year and partly in the following year.
Deferred tax: The Group tax charge includes deferred tax which is an accounting adjustment arising from timing differences. These occur when an item has to be included in the financial statements in one year but is required to be taxed/deducted for tax in another year.
Uncertain tax positions: We are subject to taxation in the many countries in which we operate. The tax legislation of these countries differs, is often complex and is subject to interpretation by management and the government authorities. These matters of judgement may mean we need to make provision for possible tax payments in future years. We make provisions against individual exposures and take into account the specific circumstances of each case. These include the strength of technical arguments, recent case law decisions or rulings on similar issues, and relevant external advice. The provision is estimated based on one of two methods: the expected value method or the single most likely amount method, depending on which is expected to better predict the resolution of the uncertainty. Approximately one quarter of our uncertain tax provisions relate to judgements on transfer pricing where there is the potential for disputes due to tax authorities potentially having a different point of view on where value is created.
Our effective tax rate in 2022
Our Effective Tax Rate (ETR) in 2022 was 20% (2021: 23%). This is our worldwide corporate tax charge in the Unilever Annual Report and Accounts of €2,068 million (2021: €1,935 million), shown as a percentage of the worldwide Group profit before tax.
Note 6A (page 169 of the 2022 Annual Report and Accounts) to the Group consolidated financial statements provides a tax reconciliation on a Group basis of the 2022 effective tax rate of 20% to the expected tax rate of 25% (the weighted average rate applicable in the countries where we made our profits). In addition, where there is a requirement to prepare local company financial statements, this will also generally include an effective tax rate reconciliation for the local company. The most significant item impacting our 2022 ETR is the disposal of our Tea business which benefited from the participation exemption in the Netherlands, accounting for a 6% reduction in our Group ETR.
Our Group tax reconciliation also shows our underlying effective tax rate of 24%.
The main reconciling items in the 2022 financial statements between the expected rate of 25% and the underlying effective tax rate (24%) include:
1.An aggregate increase in the tax rate of 4% due to:
withholding taxes on dividends paid by subsidiary companies, which cannot be offset against any other taxes due (2%)
business expenses that are not allowed as a deduction for tax purposes (1%)
withholding taxes on other cross-border payments, such as royalties and service fees, which cannot be offset against any other taxes due (1%)
2.An aggregate decrease in the tax rate of 5% due to
benefits from preferential tax regimes that have been legislated by the countries and provinces concerned in order to promote economic development and investment (2%), see further detail below regarding tax incentives
transfers from unrecognised deferred tax assets (1%)
other favourable items including tax settlements and one-off benefits (2%).
The Group’s future tax charge and effective tax rate could be affected by several factors. These include changes in tax laws and their interpretation, still to be determined tax reform proposals in the EU, the continuing OECD international tax reform work, including BEPS Pillar 1 and 2, as well as the impact of acquisitions, disposals and any restructuring of our businesses.
Withholding taxes on dividends
Dividend withholding taxes suffered by Unilever PLC
Unilever PLC receives dividends (both directly and indirectly) from subsidiary companies. In many countries, particularly developing and emerging ones, these dividend payments are subject to withholding tax. For the purposes of our tax paid by region analysis, the withholding taxes are reported in the country of the paying company, but this withholding tax is actually a cost to the recipient of the dividend.
This tax cannot be offset against other taxes due as the dividend income is not generally taxed in the UK or in any intermediate holding companies in the Netherlands. For 2022, the total dividend withholding tax suffered by the parent and intermediate holding companies was €158 million (2021: €171 million).
Tax incentives
Tax incentives are government measures that are intended to influence business decision-making or encourage businesses to invest in a particular way, by reducing the amount of tax they have to pay. A number of the territories in which we operate offer incentives of various kinds. We seek to use these incentives where they are aligned with our business and operational objectives, and where they require economic substance in order for the tax incentive to be granted.
