The unions have called for a boycott of Streets Ice Creams this summer but for Unilever and its accounting firm KPMG it is Golden Gaytimes all round.
As adviser to Unilever, the parent company of Streets, KPMG has managed to Splice – excuse the pun – Unilever’s tax bill in half. Over four years, the tax expense of this Anglo-Dutch multinational has been Spliced in thirds, from $16.3 million, through $10 million to $4.8 million.
To borrow from the plush parlance of Unilever’s marketing materials, paying just $4.8 million on annual income of $1.65 billion is the taxpayer equivalent of the Magnum Double Caramel Ego, “The Ultimate Indulgence – creamy vanilla ice cream dipped in a chocolatey coating and a layer of smooth, caramel sauce, wrapped in thick cracking (sic) Magnum milk chocolate”.
Meanwhile, as it wages thick-cracking war with the unions on the industrial relations front, and nips and tucks its tax obligations with a machete, Unilever is also having a double-choc lend of its small business suppliers by making them wait 90 days to be paid.
Unilever is not quite in the league of Fonterra, Kellogg’s and Mars which have moved to extortionate 120 day terms, but it is skipping along the same trajectory – sprinkling its treasury department with tasty interest payments care of its small business suppliers who have to wait three months to get fed.
So it was that we ventured to the company’s mission statement:
Our Corporate Purpose states that to succeed requires “the highest standards of corporate behaviour towards everyone we work with, the communities we touch, and the environment on which we have an impact”.
Among its multinational peers, Unilever is in crowded company when it comes to publishing this sort of deceptive PR fluff. But these words are as oleaginous as Bertoli itself, one of Unilever’s broad suite of global consumer products, or Vaseline for that matter, which is another.
We checked out the financial statements of Unilever Australia (Holdings) Pty Ltd, which appeared to be the top set of accounts in Unilever’s corporate Cornetto – excuse the pun – in Australia.
The usual ingredients were in evidence: the full range of fruity, honeycomb costs confected to wipe out profits in Australia, divert them offshore, and pay a faint scent of tax to keep the taxman from the door.
There they were: half a billion in advertising costs over four years, the mysterious cost line in the P&L they call “other” had jumped from $18.5 million to $48 million, the relocation to a spanking new head office (away from those everyday Australian types out at Epping to cufflink-land in the CBD at Park Street) which saw operating leases rise from $9.9 million to $23 million … then there were those good old related party loans from Holland.
For those unacquainted with the purpose of related party loans – why would you lend money to yourself? Slip it from one pocket to another? – they are to create opportunity to pay interest overseas so it is not taxed here.
It is not much in Unilever’s case, related party loans that is, just $29.5 million from Unilever Finance International BV. It’s not $3.4 billion from Switzerland at 9 per cent like Glencore used to have (raking out hundreds of millions at the apogee of the coal boom), but at least Glencore disclosed its interest rate.
Unilever also has a deal with this same Dutch entity to do its treasury – so there was $55 million sitting in Amsterdam at call at balance date. Is the Tax Office over this? How could the ATO possibly keep its eye on hundreds of multinational tax avoiders in forensic detail like this, knowing what they are up to in treasury with assorted swaps, devious derivates and so forth?
Things might be a bit easier to work out if Unilever and KPMG complied with Australian Accounting Standards Board (AASB) standards and disclosed the actual tax they paid in its cash-flow statement. But that’s an empty line, a void filled with nothing.
Things are not easy to work out because Unilever, like so many of its multinational peers, has elected to pull down the shutters and move to “special purpose” reporting, revealing less, concealing more.
To quote them, or their consiglieres KPMG, here in Note 1 to the financial statements, “The financial statements do not comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) as in the opinion of directors the company is not a reporting entity as their are no users dependent on general purpose financial reports”.
There you have it, they have said it themselves, although with no explanation as to why. The “why” is this. The more they hide, the less tax they pay. If you think about this claim, that “there are no users dependent” on more transparent reporting, it is ludicrous. How about the workers who are fighting claims the company can’t afford to pay them what they are now entitled to? How about the suppliers, family companies, who require the comfort of knowing their counter-party won’t go belly up?
Then there are taxpayers who fund the sort of services which allow Unilever and its executives to operate comfortably in this country – the police who help them not to be mugged, the teachers who school their children, those who finance the roads on which they drive.
On of the chief culprits in Unilever’s tax planning is “inter-company tax related adjustments” which pulled back tax expense by $6.5 million and $6.6 million respectively over the past two years. These might be more decipherable if the related parties involved published financial statements but Unilever has restructured and interposed an entity at the top of its corporate tree called Unilever Australia Group whose accounts are not available. Then there are restructuring costs of $18 million, which help get the tax bill down too.
Here’s another KPMG multinational classic, a structure whose purpose would appear to be designed for nothing more than to dodge tax.
Knowing that multinationals and their advisors are infamous for concocting tricky structures to avoid paying tax, we asked the company what the point of its new structure was and it delivered the plain vanilla mantra of “simplification”.
“The purpose of our recent restructure was to simplify our corporate structure.
“Unilever Australia Group Partnership was incorporated in 2003 and lodges the tax returns for the consolidated tax group in Australia. Within this structure, any commercial transactions with offshore related parties are priced in accordance with the arms’ length principle.”
It certainly doesn’t look very simple. The entity now interposed at the top of the corporate tree in Australia, Unilever Australia Group Pty Ltd, used to have Unilever Australia (Holdings) Proprietary Limited, as its sole shareholder but now has Brooke Bond Group Limited, a UK entity, as shareholder. The problem here is that it does not produce public financial statements.
Why the parent has become the child and the child the parent is anybody’s guess but Unilever Australia (Holdings) used to have Unilever Australia Services as its shareholder but now has Unilever Australia Group as shareholder. For its part, ASIC searches show Unilever Australia Services Limited is registered as a “foreign company (overseas)”. There are no financial statements and no information as to shareholders; same deal with Unilever Australia Limited.
How this tangled web represents “simplification” is unfathomable. We are not going into all the other Unilever entities here either, and there are many. We do know though that as a result of this simplification, KPMG and other advice-vendors, have been paid royalty and taxpayers have lost.
On the industrial relations front, the Australian Manufacturing Workers’ Union (AMWU) is fighting moves by Unilever to deregulate pay and entitlements for workers at the Streets Ice Cream factory at Minto, which it claims is the highest cost ice cream factory in the world.
“Unilever is seeking to terminate the Enterprise Bargaining Agreement at the Streets ice cream factory in Minto. They have lodged an application in the Fair Work Commission, which – if successfully acted upon, would revert workers on site to the modern food award.
“This would have a dramatic effect on pay and conditions at the site. Our estimates are that workers would effectively go from $40.18 to $22.43 an hour, which alongside changes to shifts, would represent an overall annual pay cut of 46 per cent.
“Our goal is to keep making Streets ice cream products in Australia, but our Minto factory lacks the flexibility needed to run a seasonal business and is too costly to run, making it uncompetitive. We cannot continue with the current situation as it’s simply not sustainable. For example, it’s currently almost 30 per cent cheaper to import a Magnum Classic ice cream made in Europe than to make the same ice cream at Minto, even when you include the 16,000 kilometres of frozen transport.
“We strongly refute statements made by the union that Unilever will, or may, reduce employee wages by 46 per cent, there is absolutely no truth to these claims.”
The practise of employers terminating agreements has become increasingly widespread, according to the unions who say it has been deployed at the WA mining town of Collie, as well as Aurizon, Esso and AGL.
If Unilever is aggressive on its tax front, Esso is in another league altogether. While Australian customers have been held ransom by a trebling in the price of gas over the past three years, Esso parent ExxonMobil has paid no tax on a gargantuan $25 billion in revenues in Australia.
The Unilever spokesperson told michaelwest.com.au the company was committed to “working constructively with all stakeholders who play a vital role in our business from suppliers to employees”.
“With regard to supplier payment terms, as with any business, we work with a range of suppliers from large to small and payment terms are negotiated and agreed on a commercial basis”.
Suppliers are hardly in the box seat when it comes to “negotiating” commercially with a multinational however and stretching payment times from 30 days to 90 days is hardly “constructive” for family-run small businesses or the economy as a whole.