Tax footprint describes the amount of tax revenue a company generates for society, and how tax is paid between different countries. VTT reports taxes paid, and entered in the accounts, as part of its tax footprint. Transparent reporting of its tax footprint forms a key part of VTT’s
corporate responsibility activities. In each case, VTT complies with local legislation on the payment, collection, book-entry and reporting of taxes.
High quality and timely management of tax returns and other statutory obligations form a key part of VTT’s management of its tax and related affairs.
At the end of the fiscal year, VTT Group consisted of four 100% owned subsidiaries in addition to the parent company: VTT Expert Services Ltd, VTT Memsfab Ltd, VTT Ventures Ltd and VTT International Ltd. In addition, VTT Expert Services Ltd owns Labtium Ltd and VTT International Ltd owns VTT Brasil Pesquisa e Desenvolvimento LTDA. VTT Brasil LTDA ceased operating in 2016 and the winding up of the company was begun via normal liquidation. The termination of the company will be completed in early 2017. At the end of 2016, VTT Ventures Ltd owned 22 associated and other companies (spin-offs).
VTT Ventures Ltd's associated companies are not included in VTT Group’s tax footprint reporting. VTT has no subsidiaries in low-tax countries.
Like other public limited liability companies, VTT Ltd and its subsidiaries are obliged to pay statutory income tax and value added tax based on their business revenue.
In accordance with the act on VTT’s incorporation (761/2014) the Finnish state shall compensate VTT for VAT costs paid on activities other than those incurred through purchases and office rental related to business activities pursued on a commercial basis as defined in 1:1, clause 1 of the Value Added Tax Act (1501/1993).
The compensation is adjusted annually on the basis of the most recent accumulation of value added tax for the Company. VTT Ltd did not generate any taxable income.
It has confirmed losses, as well as statutory reserves entered in its opening balance sheet; statutory reserves used to pay realised costs do not constitute taxable income in this respect. These items have not been recognised as deferred tax assets in the company's financial statements. However, deferred tax assets have been taken into account in the consolidated financial statements in accordance with the prudence principle, by recording half of their total amount, EUR 12 million, in deferred tax assets. The Group's subsidiaries have also confirmed losses subject to taxation. In the subsidiaries’ accounts, no deferred tax assets have been recognised in relation to confirmed losses, in accordance with the prudence principle.
Since VTT Korea and VTT Brasilia, which form part of the Group’s subsidiaries, account for a total of EUR 0.1 million (2015: EUR 0.2 million) of all of the subsidiaries’ taxes, they have no material impact on tax footprint reporting. The relevant taxes and charges are listed in the table by tax category; VTT Ltd is reported separately and the subsidiaries as a whole.
The Group’s effective income tax rate in 2016 was 0.0%. Most taxes were booked in Finland.
In 2016 VTT Ltd was paid a total of EUR 19 million in VAT compensation by the Ministry of Economic Affairs and Employment for non-business-related purchases and office rents (2015: EUR 19 million). EUR 16.0 million in VAT compensation was used during the financial year (2015: EUR 16.3 million). In 2016 VTT Ltd realised general state funding of EUR 77.2 million (2015: EUR 85.4 million). In addition, it received a EUR 1.0 million state investment subsidy (2015: EUR 1.1 million) and a total of EUR 5.7 million in investment subsidies in general (2015: EUR 4.3 million).
The tax reporting of VTT Group is audited by VTT’s auditor, Authorized Public Accountants KPMG Oy Ab, to the extent that such reporting is included in VTT's financial statements.
VTT's taxes and charges by tax category
Governance and control system
VTT complies with the corporate governance principles defined by the Board of Directors. In all decision-making and governance, the company complies with Finnish laws and regulations and the Articles of Association.
The tasks of VTT’s and its subsidiaries’ various bodies are governed by the laws of Finland. VTT complies with the corporate governance principles defined by the Board of Directors, which are based on the Finnish Companies Act.
VTT is committed to the Finnish Corporate Governance Code. The company has deviated from the Corporate Governance Code (2015) as follows:
Recommendation 3 - Not all candidates for Board membership participated in the Annual General Meeting of 3 May 2016.
Recommendations 18a and 18b on a Nomination Committee - Given the scope and number of issues to be prepared in relation to recommendations 18a and 18b, a Nomination Committee is not considered necessary. The Board of Directors is responsible for the tasks in question.
Recommendation 23 - Remuneration and shareholding of the Board of Directors. This recommendation states that Board and committee remuneration can be paid in full or in part in company shares and that shareholding by Board members promotes good governance. VTT is a wholly state-owned limited liability company, the ownership of which is fully held by the State. For this reason, VTT does not pay Board and committee remuneration in shares.
The Corporate Governance Code can be found at: http://cgfinland.fi/files/2015/10/hallinnointikoodi2015finweb1.pdf.
VTT and its subsidiaries form a group in accordance with the Companies Act. VTT prepares its consolidated financial statements, the parent company's financial statements and its annual report in accordance with the Finnish Accounting Act and regulations, and the Finnish Companies Act.
Internal control and risk management aims to ensure the identification, assessment and monitoring of risks affecting the company's business activities.
All planning and reporting procedures are used as tools for internal control and risk management.
The control environment is based on the values defined in the strategy, and defined and monitored processes and guidelines. Performance targets, based on which personal targets are agreed in development discussions, are set in VTT's interactive strategic and annual planning.
The compliance function was activated and a whistle blowing channel and stakeholder notification procedure were introduced at the end of the year. One internal notification was made via the channel, which is still pending. The Ethical Committee made four statements on issues related to research ethics.
The company's auditor must be an auditing body approved by the Central Chamber of Commerce. The auditor's term expires at the close of the subsequent Annual General Meeting. On 3 May 2016, the Annual General Meeting decided that Authorized Public Accountants KPMG Oy Ab (Business ID: 1805485-9) shall act as the principal auditor APA Jorma Nurkkala.
A more detailed description of the activities of the Board, internal control and risk management is available on our website (www.vttresearch.com/vttreview2016).