Tax
Stakeholders are asking for improved disclosure of companies’ tax strategies and corporate tax payments as well as how tax payments contribute to society in a wider context. Stakeholders also want to know where companies pay taxes – and where they do not – and how much. These expectations are the result on a heightened awareness of the interrelationship between companies’ activities and wealth creation in society. This development towards a higher degree of disclosure, in terms that can be understood by people who may not have a deep technical insight into this area, has been accentuated by globalisation and increased regulation.
In addition to the mandatory disclosure of tax payments in the annual reporting, Novo Nordisk has been reporting since 2001 on the company’s economic ‘footprint’, including payments of corporate tax and employees’ income taxes. This reporting is in accordance with the Global Reporting Initiative’s standards for voluntary sustainability reporting. See the GRI Index.
Novo Nordisk is following the debates on ‘responsible tax’ and supports the principles of enhanced disclosure. We are currently reviewing how we may further improve the level of disclosure of Novo Nordisk’s tax payments, in line with emerging frameworks and investor-led guidelines for best practice.
Performance 2007
In 2007, Novo Nordisk’s effective tax rate was 22.3%, a decrease from 29.6% in 2006. This significantly lower effective tax rate for 2007 primarily reflects a non-recurring effect of around three percentage points from Novo Nordisk’s divestment of its ownership of Dako’s business activities as well as a non-recurring effect of close to two percentage points from the re-evaluation of the company’s deferred tax liabilities as a consequence of the reduction in the Danish corporation tax rate to 25% (down from 28%) introduced in 2007.
See the Consolidated Financial Statement 2007 for more details on tax.
Total income taxes (as reported in the income statement) amounted to 2,449 million DKK.
In 2007, Novo Nordisk employees accounted for an estimated 0.5% of employment in Denmark and an estimated 0.6% of total Danish income taxes. Novo Nordisk accounted for an estimated 4.5% of Danish corporate taxes. In total, Novo Nordisk’s income taxes in Denmark for the year amounted to 1,298 million Danish kroner, which was positively impacted by a tax refund of 83 million Danish kroner relating to prior years.
Novo Nordisk’s approach
Novo Nordisk’s finance policy states that “we will grow Novo Nordisk as an independent company by maintaining our financial flexibility and by delivering a competitive shareholder return.”
This includes “pursuing a competitive tax level in a responsible way”. Novo Nordisk considers tax as a cost to be paid, and that it should be paid where the profits are earned.
Following this, a well-established affiliated company will as a general rule pay taxes in the country in which it operates. For certain affiliates, Novo Nordisk is subject to local legislation, according to which the country’s health authorities have set an upper limit to gross margin profits. This may leave the local affiliate in a loss-making situation.
Furthermore, for countries in which a Novo Nordisk affiliate is in a build-up phase, it may, for a short period, not be possible to have profitable operations and hence there will be no basis for paying corporate income tax.
‘Competitive tax level’ implies achieving a tax level that approaches the peer group average.
‘Responsible way’ implies doing business in a way that meets expectations of a good corporate citizen, including paying taxes where profits are earned according to international transfer pricing rules, not engaging in tax-avoidance activities, and having a balanced tax risk profile.
A Global Tax Board oversees and coordinates tax management across the Novo Nordisk organisation, with regional tax boards linked to the corporate tax function at headquarters.
The policy and the tax strategy are endorsed by the Executive Management and the Board of Directors of Novo Nordisk.
This page has been reviewed by PricewaterhouseCoopers as part of its assurance of Novo Nordisk’s non-financial reporting. Please refer to Audit and assurance for a full description of the conclusions and the nature of assurance offered.
