Volvo Group reports Aktuellt feature to Swedish Broadcasting Commission

The Volvo Group has decided to report a feature on the Swedish news program Aktuellt to the Swedish Broadcasting Commission. The feature, broadcast on March 1, involved the Volvo Group’s tax payments, and shortfalls according to the Volvo Group’s perception of objectivity.

In the headline announcement for the feature, it was claimed that the Volvo Group has introduced a “new ingenious tax system” to “avoid corporate income tax in Sweden”.

”The headline announcement combined with what was said in the feature aims to depict the Volvo Group as a tax evader. This image does not correspond to reality and is completely unacceptable to us,” says Volvo’s Head of Group Media Relations Mårten Wikforss.

The headline announcement for the feature in question implies that the Volvo Group has developed and introduced its own special system to avoid paying corporate income  tax in Sweden. What the headline announcement refers to is the system of transfer prices that the Volvo Group, like most other multinational companies, applies and was developed on the basis of international guidelines established by the OECD (Organization for Economic Cooperation and Development). 

At the end of the 1990s, several countries introduced transfer price rules for cross-border transactions within multinational groups. The reason was that individual countries wanted to ensure that companies with operations and sales in several countries did not capitalize on their geographic spread to elude tax obligations in the various countries where the companies operated. Volvo, like many other multinational companies, introduced the model of transfer prices. The model complies with the OECD’s guidelines and the transfer model applied by Volvo is commonly used and has been reviewed and approved by the Swedish Tax Agency.
“This means that Volvo has in no way introduced a ‘new, ingenious tax system’ and the aim of the transfer price models is not to avoid tax in Sweden,” says Mårten Wikforss. “This is the first time in my ten years with the Group that we have opted to go to the Broadcasting Commission. There are limits and, this time, we believe these have been reached.”

Non-Swedish companies within the Volvo Group applying the transfer pricing model are relieved from risk taking and are therefore entitled to a low but safe income. The surplus or deficit is thereafter transferred to Sweden. This means that a total loss in these countries leads to a deduction for loss and lower corporate income tax in Sweden. During the 2008-2009 financial crisis, the Volvo Group generated major losses in these countries and these losses were utilized and will be utilized to reduce the Swedish corporate income tax. Conversely, however, the model also implies that corporate income tax in Sweden increases when there is an overall total profit in the countries that apply the transfer price model.

More than SEK 19 billion in corporate tax
In the past five years, the Volvo Group has paid an average of almost SEK 4 billion in corporate income tax per year globally (Source: Volvo Group Annual Reports 2007-2011). In total, the Volvo Group paid more than SEK 19 billion in corporate income tax in this period (Source: Volvo Group Annual Reports 2007-2011), a tax rate of 35%. Of this amount, SEK 1.1 billion was paid in Sweden and a large portion in the countries that do not apply the transfer price model. The fact that such a small portion was paid in Sweden is because the Group’s profits are mainly generated outside Sweden and in countries that do not apply the OECD’s transfer prices and because the Group utilized the large deductions for losses that arose in conjunction with the financial crisis.

“When there are deductions for losses, we use them in accordance with all legislation and rules. This is a natural feature of the systems in place to balance out business cycles and is something that contributes to safeguarding the operations and employment,” says Mårten Wikforss.

The Volvo Group has only about 5% of its total sales in Sweden and the rest outside the country. A number of the countries in which the Volvo Group operates have opted not to apply the OECD’s transfer price models. Many of these are emerging markets in South America and Asia. This means that neither profits nor losses in these countries have an effect on corporate income tax in Sweden; instead, the profits are taxed in these individual countries. In 2011, as a result of this, the Volvo Group paid SEK 5.2 billion in corporate income tax outside Sweden, most of which went to countries in South America and Asia.

“If we make products in a plant in Brazil with the help of Brazilian employees and then sell the products at a profit in the Brazilian market, it is obvious that the Brazilian tax authority will want its share of the profits,” says Mårten Wikforss. “The Brazilian state has the same need for tax revenue as other states, but from a strictly business perspective, it is no advantage for us to pay tax outside Sweden because corporate income tax is often higher in other countries than it is in Sweden.”

Approximately SEK 45 billion in other taxes
In terms of tax revenue from the business sector, corporate income tax is far from the most significant from the view of treasury finances. Corporate income tax represents only about 7% of the total tax revenues from the business sector, while tax from labor comprises about 60%.(Source: Swedish Tax Agency)

“Annually, the Volvo Group contributes between SEK 8 and 9 billion in direct and indirect tax revenue to the Swedish treasury, a total of about SEK 45 billion in the past five years,” says Mårten Wikforss. “On this basis, trying to paint a picture of us as not paying any tax in Sweden is infuriating.”

Both in conjunction with the Volvo Group’s Social Market Day in Stockholm on February 22 and in a press release on March 1, 2012, Volvo openly reported the Group’s various tax payments. The intention is to do the same in future years.

Further information (in Swedish):
Earlier press release regarding the Volvo Group’s tax payments

See Head of Volvo Group Media Relations Mårten Wikforss respond to questions regarding the Volvo Group’s corporate tax

Attachment (in Swedish):
The Volvo Group’s report to the Swedish Broadcasting Comission

March 22, 2012

Reporters who want more information, please contact Mårten Wikforss, +46 31 66 11 27 or +46 705 59 11 49.