UPM Annual Report 2023

RESPONSIBILITY

UPM

BEYOND FOSSILS

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2023

CONTRIBUTING TO SOCIETY THROUGH TAXES CREATING VALUE FOR PEOPLE AND SOCIETY

countries in which we have production facilities, such as Finland and Germany, offer such tax relief because the level of energy taxation has increased significantly in recent years.

including a temporary profit tax on the electricity sector in Finland for 2023. Energy taxation is relevant to us not only as a significant electricity producer but also in our manufacturing processes and the taxation of end products, as well as taxation at various levels of the supply chain. Electricity produced by us is subject to electricity taxation, regardless of which sources are used. The majority of our elec tricity production is CO 2 free hydropower and nuclear power. In addition, our renewable products (UPM BioVerno diesel and naphtha pro duced from a residue of pulp production) are subject to the energy taxation charged by fuel distributors to their customers. However, the energy tax rates for trans port fuels from renewable and sustainable sources, like UPM BioVerno, are lower than those from fossil fuels. Most of the energy used in our produc tion processes is subject to energy tax, although there are various tax rates and exemptions depending on the type of use. We also pay a significant amount of energy tax on fuels for logistics costs, especially for road transportation. Within the EU, energy taxation laws allow member states to compensate for the taxes paid on, or apply lower tax rates to, industrial production. Many of the main

In accordance with UPM’s Tax Strategy, the locations of our companies are driven by commercial rationale and business reasoning. We do not transfer any value created or have any investments in produc tion or service operations in jurisdictions defined by the Council of the European Union as non-cooperative jurisdictions for tax purposes, or in any similar secrecy ju risdictions. A list of UPM subsidiaries and joint operations, as well as their country of incorporation, can be found on page 219. Furthermore, our sites contribute to local employment, income tax and purchasing power, as well as engaging in projects with communities. Information can be found in the pulp and paper mills’ third-party verified EMAS reports on envi ronmental and societal responsibility. In addition to future changes to global income taxation as described above, the European Commission also aims to reform the current taxation of energy products and electricity as part of the European Green Deal development programme and its Fit for 55 climate package. The energy sector has also been impacted by the temporary measures introduced in the EU in response to the developments in the energy market, Energy taxation at various levels of the value chain

Our tax governance and tax compliance

The Board of Directors’ Audit Committee is responsible for the supervision of tax risk management as part of our risk manage ment processes. UPM’s internal control and risk management operations review tax risks regularly and update the control framework together with the tax function. A more thorough review of the tax practic es of customers and suppliers is part of our counterparty risk management processes. The UPM Tax Strategy is supported by internal instructions, internal con trols, and the benchmark analyses of best practice. Tax matters are managed by our tax function, which is complemented by third-party tax services to comply with lo cal tax reporting and filing, as well as other requirements. We aim to cooperate transparently and proactively with tax authorities. We also value dialogue with other important stake holders concerning taxation. In Finland, UPM co-operates with the Finnish Tax Administration.

The winds of change are blowing through the global principles of taxation.

contributions). We paid taxes on real estate, equity and similar properties in various countries to the sum of EUR 37 million (EUR 35 million). The table on the right displays the corporate income tax and taxes on real estate, equity and similar properties paid in our main countries of operation. Based on our corporate and operational structure, UPM mainly reports and pays its corporate income tax in countries where production and innovating activity takes place. In Finland, we have significant produc tion operations across our six business are as, as well as research and development op erations. As a result, UPM is typically one of the major taxpayers in Finland. UPM’s corporate income tax in Finland in 2023 is estimated to be EUR 112 million (EUR 247 million), which includes taxes reported and paid by UPM-Kymmene Corporation as well as its Finnish subsidiaries. In Uruguay, the government has granted several free-trade zone permits for domestic and foreign investments. The Uruguayan government has granted our pulp mills a permit to operate in a free-trade zone. Con sequently, taxes in Uruguay mainly consist of taxes on property and equity and annual tax-like charges paid to the Uruguayan gov ernment for the development of the zone. In China, as a fine paper producer, UPM qualifies as a high-tech enterprise with a reduced corporate income tax rate of 15%. UPM also pays withholding tax on divi dends in China. In countries where our companies are using tax losses from previous years to off set the tax liability of the year in question, such as Germany, limited corporate income tax is paid.

IMPACT • Taxes contribute to society on a local, regional and national level TARGETS • We are strongly committed to continuously improving our economic and social performance • Our businesses also play a leading role in contributing to societal development in the surrounding communities through the tax revenue we generate

OUR WAY • Based on the standards of the UPM Code of Conduct, the UPM Tax Strategy describes the main principles and guidelines for our taxation • Taxes are paid in accordance with local tax laws and regulations that apply to the country in question • We pay corporate income taxes in the countries where added value is created and profit is generated

Throughout 2023, the OECD, the G20 forum and the European Union (EU) con tinued to introduce and develop solutions to address the tax challenges arising from the digitalisation and globalisation of economies. These solutions are aiming for a minimum level of taxation of compa nies in the countries where they operate (the OECD’s Statement on a Two-Pillar Solution), as well as standardised public tax reporting by companies (the EU’s public country-by-country reporting). We have implemented our transparent and responsible Tax Strategy for several years. Therefore, we welcome any initi atives for more standardised global tax reporting by corporations, as well as those for fair and responsible tax payments in the countries where corporations operate. We continue to monitor and prepare for these developments in the global principles of taxation and to assess the impact on UPM.

We will modify our tax reporting accord ingly as soon as the final definitions are available. Corporate income taxes vary by country Despite the challenging circumstances, our businesses were able to continue their operations with solid results, resulting in the related tax revenue in various coun tries. In 2023, UPM’s effective tax rate was 15.2% (19.9%) and its cash tax rate was 39.5% (16.2%). The corporate income tax reported in 2023 was EUR 71 million (EUR 388 million) and the corporate income tax paid in 2023 was EUR 183 million (EUR 315 million). In addition to taxes on income, our various production inputs and outputs are also subject to taxation, which is either paid by us (e.g. energy tax or property tax such as taxes on real estate) or collected by us (e.g. VAT, payroll tax and social security

CORPORATE INCOME TAXES PAID AND PROPERTY TAXES *) BY COUNTRY EURm 2023

DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED BY UPM IN 2023 (EUR MILLION) Direct economic value created

2022

Economic value distributed Operating costs

102

Finland

-8,023 -1,287

289 -10

43 25 18

Germany Uruguay

Sales

10,460 Employee wages and benefits 19 Payments to providers of loans

Income from sale of assets

-160 -799

18 27 11

United States

Income from financial investments

40 Dividend distribution

5 5 3 3 2 1

China Austria

Corporate income taxes paid and property taxes

Other income

220

-221

1 4 2 2 1 4

Donations

-1

United Kingdom

Total

10,739

-10,491

Poland France Estonia

Economic value retained 248

349 UPM’s economic impact is significant in the surrounding communities. The company’s operations contribute to local, regional and national economies by generating economic benefits for different stakeholder groups. The related direct monetary flows indicate the extent of added value globally.

14

Other

Group total

221

*) Property taxes include taxes on real estate, equity and similar properties paid by country

80

81

UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023