RESPONSIBLE TAX PRACTICES
Finsif ESG 2015 Anniversary Seminar
CEO Timo Ritakallio, Ilmarinen Mutual Pension Insurance Company
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AGENDA • Ilmarinen in brief
• Tax climate is changing
• Investor tax responsibility
• Ilmarinen’s tax footprint
• Tax responsibility of investments
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ILMARINEN TAKES CARE OF THE PENSION COVER OF CLOSE TO 900,000 FINNS
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511,000 employees
38,500 companies
61,900 self-employed persons
PENSION CONTRIBUTIONS
For pension payments to 318,900 pensioners
For investments in future pensions
KEY FIGURES: RETURNS AND EFFICIENCY
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4.35 4.17 Premiums written
EUR
billion
Pensions paid
%
Investment returns
34.2
Investment assets
EUR
billion 76
Operational efficiency
6.8
2 times
the solvency limit
Solvency position
93 Client bonuses
EUR
million
%
EUR
billion
RETURN ON INVESTMENTS JANUARY‒MARCH 7.1% Asset allocation and return
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The modified duration of bond investments is -1.8 year. The total return percentage includes
income, expenses and operating expenses not allocated to any investment types.
Basic
breakdown Risk Return
EUR mill. breakdown %
Fixed-income investments 17,347.5 46.9 1,5746.7 42.6 1.2
Loan receivables 1,491.0 4.0 1,491.0 4.0 1.3
Bonds 14,187.2 38.3 5,270.2 14.2 0.9 1.7
Public corporation bonds 5,371.0 14.5 3,192.7 8.6 2.1
Other bonds 8,816.2 23.8 2,077.5 5.6 0.2
Other money market instruments and deposits 1,669.2 4.5 8,985.4 24.3 10.4
(incl. investment receivables and payables)
Equities and shares 13,928.6 37.6 14,461.8 39.1 14.9
Listed equities and shares 10,905.8 29.5 11,438.9 30.9 17.7 9.6
Private equity investments 1,811.9 4.9 1,811.9 4.9 6.1
Non-listed equities and shares 1,210.9 3.3 1,210.9 3.3 2.3
Real estate investments 3,639.6 9.8 3,639.6 9.8 1.4
Real estate investments 3,149.3 8.5 3,149.3 8.5 1.2
Real estate funds and joint investments 490.3 1.3 490.3 1.3 2.4
Other 2,080.7 5.6 2,724.8 7.4 9.2
Hedge fund investments 649.8 1.8 649.8 1.8 12.7 5.7
Commodity investments -9.9 0.0 85.5 0.2 -
Other investments 1,440.8 3.9 1,989.4 5.4 -
Investments total 100.0 36,572.8 98.9 7.1 3.5
Effect of derivatives 423.6 1.1
Investments at current value 36,996.4 36,996.4 100.0
% % Volatility
Current tax environment
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TAX CLIMATE IS CHANGING • Companies and investors under
scrutiny by media and public.
– Risks of reputational loss and boycotts.
• Changing regulation leading to financial risks
– Unpredictability to those walking the thin line.
• Trying to keep up with expectations:
– Discussions with stakeholders and experts.
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INVESTOR TAX RESPONSIBILITY • Special tax status of pension
insurance companies in Finland.
– Income tax paid by pensioners, not insurance companies.
– The idea is to reduce the pressure to increasing pension fees.
• Larger impact through investments’ tax responsibility, especially
– listed companies
– investment funds and structures
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ILMARINEN’S TAX FOOTPRINT
EUR million Net return
before taxes
Paid taxes at
source and
property
taxes
Refunds of
taxes at
source
Net return
after taxes
Taxes, total
Interest income 410.2 410.2
Dividend income 344.1 8.2 3.8 339.7 4.4
Income from real estate 118.2 8.9 109.3 8.9
Other investment returns 61.4 61.4
Changes in book value 606.0 606.0
Change in difference between
current and book values
661.8
661.8
Total 2,201.7 17.1 3.8 2,188.4* 13.3
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Ilmarinen’s investment returns and taxes
*Net investment return at current value
EMPLOYERS
Tax transparency of
investment targets, meetings
with management
Income tax
93 € mill.
1.9 € bill.
184 € mill.
2.2 € bill.
1 € bill.
FUNDS RETURN ON
INVESTMENTS
PENSIONS
PENSION RECIPIENTS
STATE
Withholding tax
13.3 € mill.
Income tax
PAYROLL
16.7 € bill.
approx.
3 € bill.
1 € bill.
MUNICIPALITIES approx. 4 € bill.
Taxes related to Ilmarinen’s operations
26.2 € mill. Employees
Property tax
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Client bonuses
Tax responsibility of investments
TAX IN LISTED COMPANIES • Current situation in Finland
– Only ¼ OMX 25 companies publicly committed to OECD guidelines on tax.
– Only 2 companies discussed tax footprint at Annual General meetings of 2015.
• Our approach
– We endorse tax policy and footprint reporting. Increased transparency is a way to limit aggressive tax planning.
– Looking into tools to identify the “worst of the worst”.
TAX IN FUNDS AND STRUCTURES • Current situation
– Low-tax jurisdictions commonly used in funds and investment structures.
– New multilateral agreements* to make information exchange automatic by 2018.
• Includes the major jurisdictions used in finance (Cayman Islands, Jersey etc).
• Our approach – Plans to look if our investments are aligned with
OECD Base erosion profit shifting BEPS (to be published 11/2015).
– Looking to extend tax due diligence content.
*IGA (Inter-governmental agreement) to implement US FATCA legislation, CRS (Common reporting standard) by OECD and G-20 (similar to FATCA).
CONCLUSIONS
1. Tax climate is changing.
2. Ilmarinen as a responsible investor and owner requires more transparency.
3. We plan to look at our own tax practices compared to OECD BEPS work once published.
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FOR A BETTER LIFE.