There is an increasing focus on the discrepancy between the positive growth effects of globalisation and digitalisation, against the unequal distribution of the gains of this development. In many countries, stable economic growth combines with stagnant, or even falling real incomes, for parts of the population.
We believe that we can contribute in two basic ways to closing the emerging inequality gap. We already contribute to reduced inequalities by providing internet access, digital and financial inclusion, which empowers entrepreneurship among those in need of new income.
Further, our contributions to public finances enable public services in education, health, and other services that benefit all. We support the obligation of corporate organisations to pay their lawful and legitimate, due share of taxes and levies in the countries of local operation. Still, it is largely in the hands of local governments to ensure that legitimate tax revenues have a socially just effect on society via public services.
The role of mobile services and digital access in economic growth
Telenor is dedicated to enhancing mobile communication and digital services to facilitate economic development and improve public services. The role of mobile services and digital access in economic growth and innovation is becoming increasingly evident. The vital role of digital services was acknowledged in 2016, when both the European Union and several national governments devised digital modernisation strategies, including in the Nordic countries, Hungary, Pakistan and Thailand. In 2017, Telenor made enhanced contributions to the Digital Norway initiative by investing in the Norwegian Industry 4.0 centre (Toppindustrisenteret). Telenor also engaged in national dialogue with governments on improved telecom frameworks in Myanmar and Bangladesh.
A company contributes directly to the national economy through its investments, wages, taxes and fees, and indirectly through the similar production that the company induces in vendors and partners in the value chain. Mobile communication creates a vibrant ecosystem of large and small businesses that employ millions in Telenor’s markets. We are a long term investor, employer and taxpayer. In 2017, Telenor invested NOK 23.5 billion from a total revenue of NOK 124.8 billion, adding up to an investment ratio of 18.9 per cent capital expenditure to revenue (22.8 per cent investment ratio in 2016). During the coming years, Telenor is committed to investing further in our markets to support the ambition to capture new growth opportunities, enhance internet access and connectivity, and improve efficiency.
The KPMG Impact Assessment Study
Telenor has documented its wider social and economic contribution to the societies the company works in, through the 2016 report Telenor’s Global Impact by KPMG. It documented a substantial direct and indirect contribution to economic activity, investment, public finances, employment, gender opportunities, and social and financial inclusion.
In the 2016 study, KPMG quantified Telenor’s economic contribution to our 13 countries of operation (at the time) at a total of USD 20.3 billion (NOK 163.8 billion) in 2015, divided between USD 7 billion (NOK 56 billion) in direct gross value added by our own business, and a further USD 13.4 billion (NOK 107.8 billion) value added induced in other companies through our local value chains and employee spending. The methodology to estimate direct value added was further elaborated at a company level in December 2016 (Telenor Research 05/2016: Telenor in the National Economy: A Methodology). In accordance with global national accounting conventions, the formula can be applied to Telenor where Gross Value Added corresponds to EBITDA plus total personnel cost.
On publicly reported accounting data covering the last four years, this yields the following direct Gross Value Added contribution for Telenor Group:
Our Tax policy and practice
Our Tax policy and practice is in line with legislation in all our markets. Telenor Group follows the terms of applicable Double Taxation Treaties, relevant OECD guidelines in dealing with transfer pricing and establishing taxable presence, and the recently introduced BEPS initiatives. We endorse the aims of transparency and fairness across the global tax system, exchange of financial information, and concerted action to fight base erosion and profit shifting.
For Telenor Group as a whole, corporate income tax is paid in those countries where we have our operations. The corporate income tax rate has been reduced in some countries over the last few years, which will have an impact on our payable taxes. Entering 2017, Norway reduced the corporate income tax rate from 25 per cent to 24 per cent, and in 2018, the tax rate will be 23 per cent. In Hungary, the corporate income tax was reduced from 19 per cent to 9 per cent in the same period. However, corporate income tax (CIT) is only one part of our total tax contributions – we also pay several industry-specific taxes, fees, indirect taxes (VAT, GST, sales tax, etc.) and customs duties.
Telenor has reported our country-by-country earnings, investments, taxation and employment since 2014. We report and pay taxes at the legally-obliged level in each country in a responsible and transparent way (see notes to the Financial Report for details). Telenor advises governments to forge tax systems based on universal tax principles as advocated by the IMF and World Bank, with universal tax levels across a broad tax base. Tax collection practices should rest on predictable legislation applied by an objective authority, tested by independent courts. Predictable and universal taxation is a crucial safeguard for efficient investment and affordable services for everyone.
The following table specifies the most important elements of Telenor’s direct economic contribution country-by-country. It includes Telenor’s revenues, EBITDA, capital expenditure, the corporate income taxes paid in 2017 and the number of employees, ex. India. The table does not specify all taxes and fiscal levies – only Corporate Income Tax (CIT) is included.
It is Telenor Group’s responsibility and our ambition to contribute to economic, environmental and social development in countries where we are present, acting with accountability and transparency. We aspire to be a trusted company, recognised for strong business ethics. We recognise the sovereign right of all States to introduce new tax legislation and to amend old legislation. We understand the importance of the taxes we pay in supporting the development and growth of the communities in which we operate, and take a responsible approach to respect our tax obligations.
We support a stable and transparent fiscal environment that is based on universal tax principles, levying tax based on predictable legislation applied by objective authority, and tested by independent court systems. Our aim is to engage constructively in dialogue with the relevant authorities on tax legislation, such as reviews of tax rules and the need for any changes. We support initiatives to improve international transparency in taxation matters, including OECD measures on country-by-country reporting and automatic exchange of information.
Telenor Group has an internal Policy on Tax. This Policy is approved by our Group President & CEO. The Policy is owned by our Group CFO, who is responsible for the tax strategy, the supporting governance framework and for management of tax risk.
Day-to-day responsibility for each of these areas sits with the Group Head of Tax, who reports to the CFO and will be communicating our tax strategy throughout the group. Furthermore, Telenor ́s Code of Conduct is our backbone, defining the ethical standards for how we all conduct our business.
Telenor Group shall be a prudent taxpayer worldwide, and is committed to ensuring compliance with all relevant legal tax filing, tax reporting and tax payment obligations globally. We recognise a responsibility to pay the correct amount of tax in each of the jurisdictions in which we operate. We may respond to tax incentives and exemptions, and aim to avoid double taxation on capital gains and dividend repatriation. Contracts entered into between separate legal entities within Telenor Group shall be documented and be in accordance with the arm’s length principle.
We shall be open and transparent with tax authorities about our tax affairs, and provide the information that is necessary for those authorities to perform their work in a collaborative, courteous and timely manner.
Telenor Group aims to apply diligent professional care and judgement, including ensuring that all decisions are taken at an appropriate level and supported by documentation that evidences the judgements involved. We shall always be able to defend our positions, and external advice may be sought in relation to areas of complexity or uncertainty to support the Group in complying with its tax strategy.
We aim to manage tax risk in the same way as any other operational risk across the Group. Business heads will generally take the lead role in identifying, managing and monitoring tax risks within the business. Business heads are required to immediately notify the Tax Policy owner regarding matters that may represent a tax exposure, and continuously update the Tax Policy owner on any subsequent developments.
In international matters, we shall follow the terms of the relevant Double Taxation Treaties and relevant OECD guidelines in dealing with such issues as transfer pricing and establishing taxable presence.
Concerns with regard to so-called tax havens have been mounting in recent years. Extensive efforts are ongoing internationally to prevent tax evasion and non-disclosure of financial information through the use of tax havens. Norwegian authorities have concluded tax information exchange agreements with a number of new countries. Norwegian requirements for country-by-country reporting have so far only been introduced for large companies and the issuers of listed securities in the extractive and forestry industries.
Since 2014, Telenor Group has communicated a sincere commitment to corporate responsibility by voluntarily reporting country-by-country incomes and tax contributions. We support initiatives to improve international tax transparency, including OECD initiatives for country-by-country reporting and automatic exchange of information.