Terrafame’s commitment to accountability also extends to tax matters

Terrafame Group is publishing information about its tax status in 2016. 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 government 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 Ltd., a company wholly owned by the parent company. During the financial year 2016, the Terrafame-owned subsidiary, Winttal Ltd., was dissolved and its assets available for distribution were transferred to the parent company. The dissolution was registered on 29 December 2016.

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 year from 1 January to 31 December 2016 is the company's second financial year and the first 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 therefore, does not pay taxes in other countries.

Terrafame Group has an important social role to play especially in the Kainuu region in Finland. The ramp-up of the mine and metals production plant has required extensive recruitment. The number of Terrafame Ltd.’s employees increased from 529 persons at the end of 2015 to 645 persons at the end of 2016.

In addition to its own employees, 550 people through 70 subcontractor companies worked full-time at the site at the end of 2016. On 31 December 2016, 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 so as to supplementtheir 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 2016, 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. We report our taxes 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. Due to value-added tax refunds related to the founding stage, the total amount of taxes paid, collected and accounted for is many times the amount of the net sales. Terrafame Group Ltd.’s subsidiary Winttal Oy had no taxes to report in 2015.

2016

Key figures Terrafame Group Ltd. Terrafame Ltd. Group total
Net sales, EUR 1,000 207 101,042 101,249
Earnings before tax, EUR, 1,000 -2,451 -124,912 -127,363
Average number of personnel during the financial year 3 626 630

2015

Key figures Terrafame Group Ltd. Terrafame Ltd. Group total
Net sales, EUR 1,000 111* 2,524 2,634
Earnings before tax, EUR 1,000 -1,210 -91,748 -92,958
Average number of personnel during the financial year 2 480 482

*) In 2015, the service sales of Terrafame Group Ltd. was registered under other operating income.

The table below presents the tax categories per company – first for 2016 and then for 2015, which is the year of comparison.

2016
EUR 1,000 Terrafame Group Ltd. Terrafame Ltd. Group 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% 43.52%

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

2015
EUR 1,000 Terrafame Group Ltd. Terrafame Ltd. Group total
Taxes paid      
Direct taxes paid 63 285 348
Income taxes, operating at a los 0 0 0
Asset transfer taxes 61 5 66
Property tax 0 104 104
Employer's social security contributions 2 90 92
Parafiscal charges 0 86 86
Indirect taxes paid 7 2,766 2,773
Electricity taxes, net 0 1,522 1,522
Electricity taxes 0 1,522 1,522
Electricity taxes, return 0 0 0
Insurance premium tax 7 120 127
Fuel taxes, net 0 1,110 1,110
Fuel taxes 0 1,110 1,110
Fuel taxes, return 0 0 0
Waste tax 0 14 14
Taxes collected and accounted for -192 -17,936 -18,128
Tax withheld in advance 51 1,001 1,052
Value-added tax, net -243 -18,937 -19,180
Value added tax, sales 27 693 720
Value-added, purchases -270 -19,631 -19,901
Total -122 -14,885 -15,007
Ratio of tax payments to net sales -110.05% -589.83% -596.64

 

On 41 December 2016, the Terrafame companies had unrecognised deferred tax assets of approximately EUR 41.5 million, which consisted of estimated loss for the financial year 2016 (EUR 23.6 million), the confirmed loss for the financial year 2015 (EUR 17.2 million) and deferred depreciations (EUR 0.7 million).