UPM Annual Report 2024

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WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

7. Income tax

Timing of nominal amounts of derivatives 2024

Within 1 year

Between 1–5 years

Later than 5 years

Total

EURm

2024

Foreign exchange risk Forward foreign exchange contracts Cash flow hedges

7.1 Tax on profit for the year Income tax

1,679

— — —

1,690

Key estimates and judgements

Net investment hedge Non-qualifying hedges Cross currency swaps Non-qualifying hedges Interest rate risk Interest rate swaps Fair value hedges Cross currency swaps Fair value hedges Interest rate futures Non-qualifying hedges

783

—

783

1,099

1,145

The group is subject to income taxes in numerous jurisdictions and the calculation of the group’s tax expense and income tax liabilities involves a degree of estimation and judgement. Tax balances reflect a current understanding and interpretation of existing tax laws. Management periodically evaluates positions taken in tax returns with respect of situations in which applicable tax regulation is subject to interpretation and adjusts income tax liabilities where appropriate. The group is within the scope of the OECD Pillar Two model rules. Pillar Two legislation was enacted in Finland in 2023, the jurisdiction in which UPM is incorporated, and came into effect from 1 January 2024. The group applies the IAS 12 exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes. The entities in scope will be liable to pay a top-up tax for the difference between their GloBE effective tax rate per jurisdiction and the 15% minimum rate. The group has performed an assessment of its potential exposure to Pillar Two income taxes for year 2024 based on the 2024 financial information for the constituent entities in the Group. The jurisdictions in which the group operates are expected to be either within the transitional safe harbours or to have jurisdictional GloBE effective tax rates above 15%. The Pillar Two legislation had no impact on income taxes for the current reporting period. The assessment is based on currently available information and analysis regarding the interpretation of the rules, for which additional guidance is still being developed by the OECD. The group expects that the main jurisdiction for possible exposure to additional Pillar Two income taxes in the future is Uruguay. The financial impact will depend on the results of the Uruguay subsidiaries and the decrease in the substance based income exclusion in accordance with the OECD Pillar Two model rules in subsequent years.

In 2024, tax on profit for the year amounted to EUR 37 million (71 million). The effective tax rate was 7.4% (15.2%). In 2024 and 2023, the effective tax rate was affected by the income not subject to tax from subsidiaries operating in tax free zone in Uruguay and German tax rate that is higher than in Finland. In 2024, effective tax rate was significantly impacted by the impairment on assets in biochemicals refinery in Leuna, Germany, and restructuring charges and impairment charges related to the closure of Hürth newsprint mill, the closure of Nordland fine paper machine 3 and the planned closure of Kaltenkirchen factory in Germany. Income tax

—

129

—

129

—

1,111

600

1,711

—

129

—

129

1,134

—

1,134

Commodity risk Electricity sales Cash flow hedges Electricity purchase Cash flow hedges

EURm

2024 2023

285

—

354

Current tax expense

122

161

Change in deferred taxes

-85 37

-90 71

— —

Total

Non-qualifying hedges

—

Other commodities Cash flow hedges

73 26

56 26

— —

Tax rate reconciliation

Non-qualifying hedges

—

EURm

2024 2023

Timing of nominal amounts of derivatives 2023

Within 1 year

Between 1–5 years

Later than 5 years

Total

Profit before tax

500 100

464

EURm

2023

Computed tax at Finnish statutory rate of 20% Difference between Finnish and foreign rates

93 -28 -51 28

Foreign exchange risk Forward foreign exchange contracts Cash flow hedges

-6

Tax-exempt income

-91 37

1,735

— — —

1,743

Non-deductible expenses

287

—

287

Withholding taxes

2 8 0

1,263

1,278

Tax loss with no tax benefit

Results of associates

—

134

Change in tax legislation

— —

—

Change in recoverability of deferred tax assets Utilisation of previously unrecognised tax losses

-5 -3 -9

-1

—

1,089

—

1,089

Other items

-13 37

Total income taxes Effective tax rate, %

—

134

7.4 % 15.2 %

1,691

—

1,691

Commodity risk Electricity sales

Accounting policies

Cash flow hedges

381

— —

442

The group’s income tax expense comprises current tax and deferred tax. Current tax is calculated on the taxable result for the period based on the tax rules prevailing in the countries where the group operates and includes tax adjustments for previous periods and withholding taxes deducted at source on intra-group transactions. Tax expense is recognised in the income statement, unless it relates to items that have been recognised in equity or as part of other comprehensive income. In these instances, the related tax expense is also recognised in equity or other comprehensive income, respectively.

Non-qualifying hedges

—

Electricity purchase Cash flow hedges

— —

Non-qualifying hedges Other commodities Non-qualifying hedges

—

111

—

111

The nominals of cross currency swaps are included in both foreign exchange risk and interest rate risk.

UPM FINANCIAL REPORT 2024

310

UPM FINANCIAL REPORT 2024

311

310

311

UPM ANNUAL REPORT 2024

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