Terrafame’s commitment to accountability also extends to tax matters

Terrafame Group is publishing information on its tax status in 2017. The reports are based on the guidance on tax reporting issued on 1 October 2014 by the Government Ownership Steering Department of the Prime Minister’s Office.

Terrafame Group Ltd is a special assignment company owned by the Finnish state and is subject to ownership steering by the Ministry of Economic Affairs and Employment. At the end of the financial year, Terrafame Group included Terrafame Group Ltd and Terrafame Ltd, in which the parent company has a 77.3% stake.

Terrafame Ltd was entered into the Trade Register on 5 June 2015 under the name Terrafame Mining Ltd. The company's name was changed to Terrafame Ltd in August 2015. Terrafame commenced its actual operations on 15 August 2015 after having acquired the business of Talvivaara Sotkamo Ltd’s bankruptcy estate and the related inventories and fixed assets. The financial period from 1 January–31 December 2017 is the company's third financial period and the second full year of operation.

This report includes information about the management of tax matters within the Group and an itemisation of taxes paid to Finland. Terrafame Group only operates in Finland and does not, therefore, pay taxes in other countries.

Terrafame Group has an important social duty and a regional role to play especially in the Kainuu region. The ramp-up of the mine and metals production plant has required extensive recruitment. The number of Terrafame Ltd’s employees increased from 645 persons at the end of 2016 to 650 persons at the end of 2017.

In addition to its own employees, 696 people through around 70 subcontractor companies worked full-time at the site at the end of 2017. On 31 December 2017, Terrafame Group Ltd employed five people directly.

Strategy and principles for the management of tax matters

Terrafame Ltd is focused on environmentally sustainable, safe and financially profitable operation. The business is based on three cornerstones: safety, efficiency and commitment.

Both Terrafame Ltd and Terrafame Group Ltd also act responsibly from the perspective of corporate governance. The companies and their management as well as personnel are committed to observing all applicable laws and regulations in their work. The company is also committed to implementing corporate social responsibility in accordance with the state ownership policy. As an unlisted company, Terrafame Ltd also observes, as applicable, the Finnish Corporate Governance Code (2015) for listed companies issued by the Securities Market Association.

Terrafame companies fulfil their obligations to pay and report taxes in a timely manner, and their objective is to resolve any significant tax issues in advance in cooperation with the tax authorities. The Terrafame companies strive to minimise tax-related uncertainties and to respond promptly to any regulatory changes. The companies ensure the professional competence of personnel who deal with tax issues and, if necessary, use the best possible external expertise to supplement their personnel’s know-how.

Organisation and management of tax matters

The division of responsibilities in tax matters complies with Finnish company legislation. The most important tax-related matters are dealt with by the boards of directors of the companies.

The CEO of Terrafame Group Ltd and the CEO of Terrafame Ltd are responsible for the organisation of tax matters together with the CFO of Terrafame Ltd. In 2017, the Group engaged external experts in the management of tax matters and focused on active cooperation with the tax administration of Finland.

The operations of Terrafame companies are guided by principles that emphasise responsibility. The companies do not plan their operations with the aim of gaining tax benefits, and they have no operations abroad. The companies strive to investigate the tax consequences of crucial business decisions in advance and operate in an economically justified manner, provided that their practices are acceptable from the perspective of taxation.

Reporting principles

The report is based on financial statements and accounting documents drawn up in accordance with the Finnish Accounting Act (1336/1997 of 30 December 1997). The reported taxes are based on account-specific and voucher-specific accounting. Taxes are reported in thousands of euros.

The report excludes mandatory insurance premiums that are included in salary costs. These insurance premiums, which are directly related to salaries, are dealt with as direct salary costs due to the nature of these kinds of insurance. The Terrafame companies do not report small amounts of value-added tax included in foreign travel and training costs.

Itemisation of taxes paid by Terrafame Ltd and Terrafame Group Ltd

Due to the ramp-up stage of the operations, the company has not yet accumulated taxable earnings. However, a considerable amount of tax expenses have accumulated due to the energy and fuel taxes related to the operations. In addition, the companies have paid taxes related to the acquisition and ownership of assets, as normal.

 

Key figures 2017 Terrafame Group Ltd Terrafame Ltd Terrafame companies total
Net sales, EUR 1,000 458 220,024 220,024
Earnings before tax, EUR 1,000 -3,017 -9,601 -15,005
Average number of personnel during the financial year 5 694 699

Key figures 2016 Terrafame Group Ltd. Terrafame Ltd. Terrafame companies total
Net sales, EUR 1,000 207 101,042 101,042
Earnings before tax, EUR, 1,000 -2,451 -124,912 -127,152
Average number of personnel during the financial year 3 626 629

The table below presents the tax categories per company – first for 2017 and then for 2016, which is the year of comparison.

2017
EUR 1,000 Terrafame Group Ltd Terrafame Ltd Terrafame companies total
Taxes paid      
Direct taxes paid 8 1,146 1,154
   Income taxes, operating at loss 0 0 0
   Asset transfer taxes 0 4 4
   Property tax 0 545 545
   Employer's social security
   contributions
5 354 359
   Parafiscal charges 3 243 246
Indirect taxes paid 1 5,654 5,655
   Electricity taxes, net 0 1,282 1,282
      Electricity taxes 0 2,742 2,742
      Electricity taxes, return 0 -1,460 -1,460
   Insurance premium tax 1 331 332
   Fuel taxes, net 0 4,019 4,019
      Fuel taxes 0 4,653 4,653
      Fuel taxes, return 0 -634 -634
   Waste tax 0 22 22
Taxes collected and accounted for -38 -22,557 -22,595
   Tax withheld in advance 183 7,156 7,339
   Value-added tax, net -221 -29,713 -29,934
      Value added tax, sales 110 47,398 47 508
      Value-added, purchases -331 -15,757 -15,786
Total -29 -15,757 -15,786
Ratio of tax payments to net sales -6,32% -7,16% -7,17%
2016
EUR 1,000 Terrafame Group Ltd Terrafame Ltd Terrafame companies total
Taxes paid      
Direct taxes paid 10 1,419 1,429
   Income taxes, operating at a loss 0 0 0
   Asset transfer taxes 0 212 212
   Property tax 0 487 487
   Employer's social
   security contributions
7 545 552
   Parafiscal charges 3 175 178
Indirect taxes paid 1 6,611 6,612
   Electricity taxes, net 0 2,906 2,906
      Electricity taxes 0 3,273 3,273
      Electricity taxes, return 0 -367 -367
   Insurance premium tax 1 390 391
   Fuel taxes, net 0 3,267 3,267
      Fuel taxes 0 3,463 3,463
      Fuel taxes, return 0 -197 -197
   Waste tax 0 48 48
Taxes collected and accounted for -210 -51,892 -52,102
   Tax withheld in advance 158 6,170 6,328
   Value-added tax, net -368 -58,062 -58,430
      Value-added tax, sales 61 10,570 10,631
      Value-added, purchases -419 -68,632 -69,061
Total -199 -43,862 -44,061
Ratio of tax payments to net sales -96.14% -43.41% 43.61%

 

On 31 December 2017, the Terrafame companies had unrecognised deferred tax assets of approximately EUR 36.3 million, which consisted of an estimated loss for the financial year 2017 (EUR 1.1 million), the confirmed loss for the financial year 2016 (EUR 20.4 million) and the confirmed loss for the financial year 2015 (EUR 16.9 million).

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