- PTTGC : Tax Strategy and Tax Policies
PTTGC Tax Strategy
“With our longstanding practice of Good Corporate Governance, PTTGC is committed to be transparent, responsible and accountable in all tax matters, aiming to build sustainable trust with stakeholders and societies where we operate.”
In support of our overall business strategy and objectives, PTTGC pursues a tax strategy that is principled, transparent and sustainable in the long term. We have established principles governing our strategy and related tax policies which have been the result of a longstanding PTTGC practice.
Mr. Anon Sirisaengtaksin, Chairman of the Risk Management Committee (PTTGC annual report 2015. P. 100) The Board of Directors (BOD) level, Risk Management Committee (RMC), and Enterprise Risk Management Committee (ERMC) in general have given precedence to risk management including taxation risks. The Management reported the progress of risk management activities to the BOD on a regular basis. Additionally, the Audit Committee reviews the effectiveness of risk management based on business performance reports, internal audit reports and auditor reports. These could reasonably assure that the Company would be able to mitigate potential risks down to acceptable level.
We are committed in our responsibility towards our stakeholders in the widest sense and we set our ambition on ensuring sustainable continuity, proper business and commercial rationale in our daily practice, including proper management of resources and flexibility of management to face the increasingly complex international taxation landscape.
In that spirit, our tax policies consist of 3 pillars:
Tax Code of Conduct: We strive to achieve sustainable and competitive company taxation and sustainable value and growth including good corporate tax citizenship with added value for society.
Tax Risk Management: We are fully compliant with tax laws and regulations in all jurisdictions where we operate. We aim to manage our (tax) risks including tax consequences due to changes in governments’ tax policies or administrative tax practices. This encompasses maintenance of documented policies and procedures in relation to tax risk management and completion of thorough risk assessments in all taxation affairs. This includes, among others, compliance, operational and external reporting risks.
Tax Transparency: We are transparent in our tax communication to governments, fulfilling all statutory disclosure requirements on taxation. We welcome the recent developments relating to public disclosure of tax strategies of companies and accompanying economic contribution reporting. For us good corporate citizenship includes excellence in tax governance, tax accountability and tax transparency building trust with societies and stakeholders.
PTTGC Tax Policies
PTTGC Tax Code of Conduct
- Compliance: We act at all times in accordance with all applicable laws and is guided by relevant international standards and we aim to comply with the spirit as well as the letter of the law.
- Corporate ethics: Our Tax Code of Conduct is based on our Corporate Governance and Business Code of Conduct which requires that our business be transacted in accordance with a high standard of corporate conduct appropriate to our standing as a major company with worldwide operations.
- 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.
- Tax Structuring: We do not enter into tax fraudulent, contrived or abnormal tax structures. Furthermore, we will not enter into complex tax structures where the primary objective is accessing tax benefits and the sole purpose is tax avoidance.
- Sustainable company taxation: We have a responsibility to our shareholders to be financially efficient and deliver a sustainable taxation that enhances shareholder value.
- Tax Incentives: In line with the objective of tax efficiency, we will seek to make use of legally available tax incentives, within the context of sound and sustainable business decision-making. Incentives may include tax holidays, accelerated asset allowances or other incentives. All are in the context of national or local tax policy and would generally be available to any business that meets the relevant criteria. These incentives may influence our business decision making, but are only one of a range of economic factors taken into account.
- Relationships with tax administrations: We respect the right of governments to determine their own tax structures, rates of tax and collection mechanisms. We seek an open and constructive dialogue with the tax authorities in pursuit of professional and constructive working relationships.
PTTGC Tax Risk Management
- Process Compliance: We commit to act responsibly in relation to our tax affairs. This means that we comply with the tax laws and regulations of each country in which we operates. Where tax laws do not give clear guidance, prudence and transparency shall be the guiding principles.
We furthermore commit to be globally compliant in timely, accurate and complete filing of tax returns and striving to avoid adjustments, fines and interest costs.
Our economic contribution, of which tax forms a part, is important and we aim to ensure that we pay the right and proper amount of tax in each country in which we operate.
Operational controls apply to all processes relating to the management of tax liabilities for which tax is accountable.
- Monitoring & Reporting: We commit to appropriate internal and external tax monitoring and reporting and accurate representation of current and deferred tax expenses.
- Reputational risk: We are furthermore committed to effectively monitor and manage compliance and reputational risks related to our tax affairs. We periodically review the quality and integrity of tax arrangements, as well as the accuracy and comprehensiveness of tax data, tax returns and reported results regarding tax provisions, exposures and deferrals.
PTTGC Tax Risk Management and Tax Control Framework
Referring to PTTGC Tax Strategy, PTTGC is committed to be transparent, responsible and accountable in all tax matters, aiming to build sustainable trust with stakeholders and societies where we operate. In that spirit, PTTGC has established the PTTGC Tax Risk Management and Tax Control Framework which enables PTTGC to meet the commitments of our Tax Strategy.
PTTGC Tax risk Management is focused on managing the risk associated with taxes for our Thai and foreign entities. This includes keeping current with tax laws and changes as they occur, improving controls over tax financial reporting requirements, managing the global tax audit activity, determining that compliance with tax requirements occurs in every jurisdiction, providing access to proper expertise in each jurisdiction and accurately reporting global tax accounts by jurisdiction
PTTGC has developed the PTTGC Tax Control Framework which enables PTTGC to meet the objectives of Tax Risk Management. PTTGC Tax Control Framework can be defined as a set of processes, roles, responsibilities, reporting and mitigating policies for PTTGC business transactions with possible tax consequences. This means that PTTGC aims to be "in control" of all key tax issues, being able to detect, document and report any relevant material tax risks in a timely way, and bringing all tax processes in the scope of the Tax Control Framework. In this way the PTTGC Tax Control Framework should enable PTTGC to identify, mitigate, control and report tax risks internally and when necessary externally.
PTTGC Tax Control Framework is based on the work and reports of COSO (the Committee of Sponsoring Organizations of the Treadway Commission), which has published the most widely recognized international standard for an integrated framework of internal control (the COSO Framework). PTTGC’s customized COSO model is composed of the three following dimensions:
Dimension 1: Tax risk internal control process
In order to implement PTTGC Tax Control Framework, we have set out a tax risk internal control process as described below;
- Business operations – Define business operation models. We evaluate the type and size of business activity as it will be an early indicator for tax risk management purpose. Different business activities (i.e. manufacturing, sale and marketing, R&D, and holding activity) will lead to different tax risks.
- General tax environment – Define general tax environments for all countries and jurisdictions in which we operate. We are aware that changes in tax laws and regulations and tax culture in each certain country or jurisdiction will impact our tax risk.
- Tax compliance requirements Identify tax compliance requirements in all countries where we operate. To determine tax risks, we monitor tax compliance requirements in relevant jurisdictions. These include tax filing, tax payment for all applicable taxes and other related compliance requirements such as transfer pricing documentation.
- Tax operations process – Set Set out tax operation process which enables PTTGC to meet all compliance requirements. This process clearly identifies roles and responsibilities within the tax function and includes workflows for each tax operations.
- Risk identification – Identify tax risks for key taxes and for all jurisdictions where we operate based on information received from process (1) – (4) of PTTGC tax risk internal control process. For significant tax risks, we determine the size of the risks and their impact to the financial statement as well as the probability of the risks. These two criteria determine how tax risks should be managed.
- Risk mitigation – The risk mitigation procedures has been set to manage key identifiable tax risks. These could reasonably assure that PTTGC would be able to mitigate the potential tax risks down to an acceptable level. Risk mitigation shall include;
- Accept the risk - acknowledge the existence of a particular risk.
- Monitor the risk - actively monitor the process and compliance requirements for changes that impact tax risk.
- Control the risk - actively implement actions in the tax process to minimize the impact or likelihood of the risk.
- Avoid the risk - actively adjust the tax process, or roles to eliminate or reduce the risk.
- Transfer the risk - reassign organizational accountability, responsibility, and authority to another stakeholder willing to accept the risk or insure the risk with group or third party insurance providers.
- Control mechanisms - Control mechanism is the internal control established by PTTGC and is aimed at mitigating risk. Control activities will be performed at all levels of the entity, at various stages within business processes, and within the available technology environment.
Control activities involve the designing, implementing and executing of key controls with the aim of controlling the inherent risks in the process. Key controls shall include authorizations and approvals, verifications, reconciliations, business performance reviews and segregation of duties. The control activities are communicated and embedded throughout the organization.
PTTGC has regularly monitored the internal control mechanisms. We assess the effectiveness of the internal control and any control deficiency will be improved consistently.
Dimension 2: Tax risk identification
The different types of tax risks will be defined in dimension 2. Every entity faces a variety of risks from external and internal sources that must be assessed. Potential tax risks shall be classified into;
- Transactional risk – the risks and exposures associated with specific (non- recurring) transactions undertaken by a company such as acquisitions, disposals, mergers, financing transactions, tax driven cross border transactions, internal reorganizations and foreign assignments of staff.
- Operational risk – the risks of applying the tax laws, regulations and decisions to the routine everyday business operations of a company such as starting new business ventures, new operating models and operating in new locations.
- Compliance risk - primarily relates to the preparation, completion and review of an organization’s tax returns and the risks within those processes as well as correspondence with tax authorities. All to ensure timely and correct filing of the applicable returns and paying taxes due.
- Finance and accounting risk – mainly relates to changes in accounting policies and IFRS/GAAP, changes in legislation and changes in accounting systems.
- Management/HR risk – primarily relates to changes in tax personnel without proper succession and recruitment strategies. All to ensure appropriate documentation of relevant tax information and processes within the tax function.
- Reputation risk – Potential impact on PTTGC Group’s reputation.
Dimension 3: Key taxes defined
The key taxes defined will in principle include corporate income tax, value added tax, withholding tax, excise duties and any other tax relevant in the respective jurisdictions of PTTGC and its subsidiaries. Major considerations for each key taxes defined are described below;
Corporate income tax
- Corporate tax incentives – requirements for application of these privileges need strict accounting records and proper monitoring of business activities.
- Substance requirements – the risk is that if a company does not comply with the relevant substance requirements in a specific country, it could result in adverse tax consequences, including a penalty risk.
- Ongoing monitoring of changes in tax law and regulations
- Rapid change in tax systems. For example, many countries are introducing the filing of electronic tax returns so PTTGC shall ensure that the capabilities are in place to meet all system requirements.
Value added tax (VAT) or Goods and services tax (GST)
- Supply chain risk – the entity should properly understand key supply chain flow. Changing in supply chain can give rise to VAT issues.
- Geographical risk – proper understanding of relevant local compliance to determine whether the entity is required to register and account for VAT in those countries where it trades or is deemed to trade.
- Business process risk which include possibility of human error, reconciliation of invoices with supporting documents, proper providing required documentation for tax audits.
- External risk such as legislative developments, more sophisticated tax audits.
- Tax treaties. The withholding tax exposures are influenced by the application of tax treaties and therefore proper review of the most beneficial tax treaty rate is necessary.
- Certain countries apply a wide scope and/or different definition of payments that may be subject to withholding taxes e.g. management or professional fees, royalties.
- Certain countries apply withholding taxes on non-resident companies on profits or income relating to property which they own.
- Proper application of crediting foreign withholding taxes in the corporate tax return.
- Reporting requirements for the payments. Some jurisdictions require annual reporting within a specified period after the withholding occurs.
- Proper application of excise duty regulations and compliance.
- Expertise in energy, petrochemical and chemical for correct settling of excise duty and proper application of relevant formalities.
- Tariff classification analysis of excise goods and complex representation in the process of obtaining binding excise information (BEI)
For all PTTGC legal entities, the Tax Control Framework will be filled in and monitored and regularly evaluated on proper functioning. The functioning of the PTTGC Tax Control Framework will be presented to PTTGC Risk Management Committee on a regular basis.
PTTGC TAX RISK GOVERNANCE
PTTGC Tax Transparency
We are committed to an open and transparent principle based approach towards taxation.
Transparency to Tax Administration
- For us this means, first of all, tax transparency to tax administrations where full disclosure will be given to fulfill all regulatory requirements in all jurisdictions we operate in.
- This includes information necessary to properly understand entries in a tax return and information specifically requested during tax audit enquiries. In this context, we ensure that proper documentation is kept to meet local tax requirements.
Transparency to Other Stakeholders
- We are furthermore committed to tax transparency responsibilities towards our stakeholders in the widest sense in line with our sustainability approach. In that spirit of transparency and continued disclosure, we have decided to publish our tax strategy and tax policies.
- We are transparent about our approach to tax and will put forward understandable, timely and transparent communication about our tax strategy and tax policies. We believe that this tax transparency is a cornerstone of good tax governance.
- Furthermore, we endeavor to ensure that we are appropriately transparent on our economic contribution in order to provide greater insight and clarity to stakeholders and societies where we operate.
The table above shows that over 97% of PTTGC Group revenue is generated in Thailand with corporate tax rate of 20%. Most of PTTGC’s domestic operations obtained tax exemption privileges and double deduction expenses from the Board of Investment (BOI).
Tax privileges granted under BOI are categorized in three main areas:
- Corporate income tax exemption (tax holiday) for a period of 8 years;
- 50% reduction of corporate income tax for additional 5 years; and
- Double deduction of transportation, electricity and water costs from corporate taxable income for 10 years.
PTTGC’s effective tax rate in Thailand is normally lower than the 20% corporate income tax rate due to BOI certificates granted to local operations. Our effective tax rate varies year by year because of various effective periods of the privileges and operating performances. The local operations are mainly tax exempted except for Refinery and Olefins businesses. PTTGC effective tax rate in 2016 was approximately 10%.
The comparison of revenue and operating profit between 2016 and 2015 are described below:
- The company reported revenue declined from 2015 due to lower average crude oil price of 10 USD per barrel, from 51 to 41 USD per barrel. Furthermore, refinery unit had planned turnaround while olefins unit 3 (Thailand) had a planned maintenance and shutdown during the first half of 2016.
- On the contrary, net operating profit was significantly increased by 27% due to recovery plan achievement including stock gain from the uptrend crude oil price, from 35 to 52 USD per barrel at the end of the year (2016).
The international businesses were mostly under improvements attributing to negative performances in 2016 as stated below:
- In France, the business has continued reporting negative performance due to a regulatory plant maintenance shut down every 3 years. During the period, the company decided to convert production unit from TDI1 to HDI2 to improve business performance. Our business paid an annual local income tax called “CVAE”, stands for Cotisation sur la Valeur Ajoutée des Enterprises levied on gross margin. Nonetheless, it showed negative tax amount from the reversal of deferred tax liabilities of assets revaluation.
- In the USA, one of our businesses focuses on bio-based chemicals, research and development which were less competitive in the low crude oil price scenario resulting in negative performance. Nevertheless, it reported negative tax amount due to the reversal of deferred tax liabilities of assets revaluation. Another business was obligated to pay taxes as usual profitable performance.
- For other countries, some companies generated losses while some contributed profits. Those entities with taxable income were obligated to pay tax in accordance with local regulations.
- PTTGC’s Product Stewardship Statement
PTT Global Chemical Public Company Limited (PTTGC) commits to be a Leading Chemical Company for Better Living. To that end, PTTGC embraces Product Stewardship as an integral part of its activities to continuously improve the environment, health, and safety performance of its products and processes by:
- Working in partnership with stakeholders in our supply chain to improve the environment, health, and safety performance of our products.
- Maintaining open communication channels with relevant stakeholders about PTTGC’s products and processes.
- Providing resources to implement product stewardship programs, such as Life Cycle Assessment (LCA) program, research and development program to reduce environmental impacts, and sustainable sourcing programs, on an ongoing basis.
PTTGC’s Product Stewardship is a critical value for health, safety, and the environment throughout our value chain.
- PTTGC's GMO Position Statement
The use of Genetically Modified Organisms (GMO) has raised considerable concerns about their use and environmental impacts amongst concerned stakeholders in our society today. The development of genetically modified organisms (GMOs) may be seen a vital resource for addressing many challenges.
In Thailand, the handling of GMO is legally controlled under Thai laws, for example:- Plant Quarantine Act, Plant Protection Act and Hazardous Substance Act. PTT Global Chemical understands its responsibility as an international business entity, and with this in mind we wish to make clear our position through this statement on GMO.
At PTT Global Chemical, we are not directly involved in the business of food processing. A small proportion of PTT Global Chemical products used for commercial purposes may be manufactured from raw materials that could have been originally derived from crops which have been genetically modified. It is the company's position that we support the responsible use of modern biotechnology within the framework of effective regulatory control and the provision of adequate information about its use.
We, as a sustainable company, continuously monitor the progress and potential effects of GMOs and will act upon any new findings.
- CSR Group-Wide Strategy
CSR Group-wide Strategy
PTTGC corporate strategy consists of three main strategies; 1) Sustain Core, 2) Accelerate Growth Levers, and 3) Balance Business with Sustainability. The balance business with sustainability as our Corporate Sustainability Strategy has integrated responsibility of economic, social, and environment, and reviewed annually. This strategy was formulated by considering sustainability trends, UN SDGs, and stakeholder’s expectations and concerns to provide guidance for developing CSR activities with balancing business growth.
The Balance Business with Sustainability strategy has three pillars; 1) Environmental Value 2) Economic Value and 3) Social Value, to do sustainable business together with Creating Shared Value.
To strengthen company business performance, and associate with the Corporate Sustainability Strategy to increase value to the communities, we have developed CSV projects by conducting an evaluation of our CSR project portfolio to identify projects that are of high value to society and our business according to the concept in G-BEST guideline as follows:
- Good citizenship – Being a role model citizen;
- Better Living – Enhancing the quality of life in economic, social and environmental dimensions;
- Ecology – Developing ecological sustainability;
- Sharing – Sharing knowledge and expertise to social and achieve value for business; and
- Togetherness – Working together to build strong communities and society, and enhancing relation with stakeholders.
The G-BEST criteria enable PTTGC to prioritize the CSR/CSV projects which the three main priorities, which are
- Better Living: Example “Bioplastics for Sustainable Practices”,
- Sharing: Example “Sung-Cheuk (Floating Marine Habitat)”,
- Ecology: Example “Biodiversity Restoration Project”.
For more information about the three priorities can found in “CSR Activities” at http://www.pttgcgroup.com/en/sustainability/sustainability-societyhttp://www.pttgcgroup.com/en/sustainability/sustainability-society
Moreover, the G-Best results are plotted in the matrix table to identify “Flagship” project with high value to society and business, which are considered to strengthen company business performance and increase value to the communities.
- Creating Shared Value Strategy
PTTGC is committed to enhance CSR projects’ ability and capacity to efficiently move forward. PTTGC conducts regular monitoring and evaluating project performance. To reinforce the long term value for our stakeholders and create value among communities and partners, OTTGC also adopts Creating Shared Value (CSR) in its CSR projects.
- The initiatives leverage PTTGC’s existing strengths including intellectual property, facilities, and equipment.
- The initiatives create value rather than just protect by focusing on activities that go beyond compliance.
- The initiatives create social and business value by engaging strategic stakeholders.
- Evolution from philanthropy to CSV is seen as a mega trend to make the business case for investment by demonstrating potential business and social values.
- Engage key stakeholders to create social impact and deliver business value.
- PTTGC CSV initiatives align with PTT CSV principles.
- PTTGC manages non-technical risks to ensure business continuity.
- CSV initiatives have direct connection between social results and business performance.
- Initiatives have potential risks if tangible benefits to society and business are not achieved.