Economic Contribution and Taxes
Our purpose is to create sustainable value with everything we do, which also means balancing the interests of all our stakeholders.
- With production sites in 56 countries, Henkel’s global business operations play a major role in contributing to regional development.
- A substantial amount of our sales directly benefit our suppliers and other business partners in 115 countries.
- The largest share of the value added that we create goes to our employees in the form of salary and pension benefits. Some of the value added is paid out to shareholders as dividends. Our business activities generate tax income for the public sector; lenders receive interest payments.
- The value added remaining in the company is available for investments in future growth.
- Being a good corporate citizen means that we comply with all applicable laws, rules and regulations in the communities in which we operate. This includes respect for all relevant tax laws, and ensuring the correct calculation and payment of local taxes at the right time, as required by those laws.
Create sustainable value
Responsibilities and expectations
Our tax governance
Henkel aims to be a good corporate citizen wherever it operates and is committed to create sustainable value when conducting business. This is based on a clear vision and a set of shared values that provide the foundation of the behavior and actions throughout the company. With production sites in 56 countries, Henkel’s global business operations play a major role in contributing to regional development. We create employment and business opportunities in the local economies as an employer of around 51,200 people, as well as through our activities as a buyer, supplier, business partner and investor.
A substantial amount of our sales directly benefit our suppliers and other business partners in 115 countries. The largest share of the value added we created in 2022 – 66.3 percent – went to our employees in the form of salary and pension benefits. Central and local government received 8.5 percent in the form of taxes; lenders received 2.9 percent as interest payments. We paid 13.8 percent of the value added as dividends to shareholders. The remaining 8.6 percent of value added is available for investments in future growth.
Being a good corporate citizen means that we comply with all applicable laws, rules and regulations in the communities in which we operate. This includes respect for all relevant tax laws, ensuring the fulfillment of local tax obligations and paying the right amount of local and national taxes at the right time, as required by those laws.
Direct and indirect taxes are a major source of income for all levels of state – and a national matter that remains in the hands of the individual countries. As a consequence, various national tax laws exist alongside each other, leaving multinational companies with the risk of double taxation. On the other hand, international tax differentials also provide globalized firms with the opportunity to reduce their overall group tax burdens and optimize their tax positions. For this reason, global players see themselves increasingly challenged by governments and the general public. As a consequence, companies need to be able to explain the way they allocate their profits and losses around the globe and the corporate structures they adopt in all countries where they are active.
Approach to tax
Our tax concept and tax strategy are underpinned by our global Code of Conduct, which obligates us to act in accordance with all applicable laws, regulations and internationally binding guidelines wherever Henkel operates. This also includes the OECD Base Erosion and Profit Shifting (BEPS) Reports and the BEPS Action Plans, which comprise, inter alia, principles for the determination of transfer prices based on the arm's length principle, which Henkel follows. Along with that, transparency and compliance are central to us.
Tax considerations generally follow business requirements and, like many other aspects, can influence decisions, but are not the sole determining factor. Strategies or structures for the purpose of tax avoidance are not pursued. In line with this, we do not use tax havens to avoid taxes and pay appropriate taxes in the countries in which we operate in accordance with the functional and risk profile determined pursuant to the relevant transfer pricing regulations.
Overall, we fulfil our responsibility as a compliant taxpayer, while successfully developing our business economically and ensuring competitive business growth. Our aim is to create sustainable value with everything we do, which also means balancing the interests of all stakeholders – this includes promoting economic and social progress in local communities as well as serving the needs of our employees, investors, suppliers, customers and consumers. By paying taxes corresponding to our value creation worldwide, we contribute to local tax revenues and thus to the fulfillment of the local social and economic tasks of the respective countries. This is one of the ways in which we pursue our corporate purpose, which unites all of us at Henkel: "Pioneers at heart for the good of generations.”
The tax department is supervised by our Chief Financial Officer (“CFO”), who is primarily responsible for planning and implementing our financial strategy, which also comprises our tax concept. In this context, our CFO makes the substantial decisions on tax topics in consultation with Henkel’s tax department and with the involvement of external tax advisors and auditors.
Tax governance, control, and risk management
The Finance Tax & Trade Group (“FTG”) is responsible for the global governance of all tax and trade matters within Henkel. The specification of tax and trade governance is determined by FTG and is reflected in our strategies, objectives, policies, corporate standards as well as internal audits. Key tax and trade roles and responsibilities include ensuring global compliance, providing advice, managing risks, and supporting tax audits. FTG performs this duty by setting standards, guidance and instruction to ensure compliance with tax and trade requirements worldwide. These standards apply to all direct and indirect subsidiaries of Henkel AG & Co. KGaA (“Legal Entities”). FTG monitors and analyzes changes in tax legislation that are of global or regional relevance (e.g. BEPS, PILLAR 1 and 2, DAC 6, etc.) or applicable to cross-border transactions, develops information materials, and trains the regionally and locally responsible colleagues in the affiliated companies accordingly.
In accordance with the Corporate Standard Tax & Trade, the local finance directors of Henkel’s legal entities abroad are responsible for tax and trade compliance and are supported in this regard by local tax and trade experts as well as FTG and external advisors. The group’s global network of tax experts also supports Henkel’s businesses worldwide to comply with local tax and trade requirements.
Henkel operates a Tax & Trade Risk Management process to identify, to quantify and to evaluate all tax and trade risks. All risks that could potentially impact tax and trade positions and thus impact the effective global tax rate or liquidity are covered. In addition, Henkel has established a Tax Compliance Management System (so-called Tax CMS), initially for the German companies, to support the proper and timely fulfillment of tax obligations.
The CFO and the Management Board of Henkel AG & Co. KGaA are regularly informed about tax and trade-related topics of the Henkel Group and receive a regular overview of potential tax and trade risks as part of the global risk management system. Ethical & compliant behavior is of highest priority for Henkel, its employees, and stakeholders. This includes strict compliance with whistleblower laws globally. Henkel’s employees and stakeholders and all persons affected by Henkel's business activities, are, therefore, requested to report potential misconduct. Henkel will analyze all messages thoroughly, through a fair process ensuring the rights of the persons reporting as well as the rights of the persons implicated are respected and all information is treated with utmost confidentiality. Whistleblowers who report potential misconduct in good faith will be protected, any kind of retaliation against them will not be tolerated. Henkel’s Compliance organization, mandated by Henkel’s Management Board to responsibly handle all reports to the group, can be reached by email, via the webform, and openly or anonymously through Henkel’s Compliance Hotlines.
Stakeholder engagement and management of concerns related to tax
FTG is involved in significant transactions by all divisions of the Henkel Group and advises on tax and trade aspects. Clear management guidelines serve to ensure that tax and trade perspectives are considered by senior management and the Management Board.
With regard to cooperation with its external stakeholders, i.e. the tax authorities, FTG takes a proactive and transparent approach. Offerings from the tax authorities, such as Advance Pricing Agreements or other programs to accelerate tax audits, are taken up wherever possible in order to ensure legal certainty at an early stage. Furthermore, FTG coordinates with the tax authorities on the tax treatment of special matters to the extent possible in order to ensure a common understanding of the law from the outset.
In 2022, Henkel’s effective tax rate reported was 25.8 percent. We paid 711 million euros in income taxes which is spread across our regions as follows: 52 percent were paid in Western Europe, 11 percent in Eastern Europe, 5 percent in North America, 4 percent in Latin America, 22 percent in the Asia-Pacific region and 6 percent in India, Africa and the Middle East region. In addition to its corporate taxes, Henkel also provides a substantial source of income for all levels of state in the form of custom duties, payroll taxes, pension taxes, social security costs, property taxes, energy, VAT, etc.
We are committed to leadership in sustainability – this is one of our core corporate values. Paying taxes is an important part of our wider economic and social impact. This means that managing tax risks and ensuring full compliance with all tax and trade rules is key to managing our business responsibly and in an economically successful manner. Balancing the interests of all our stakeholders – in particular our investors, suppliers and customers as well as the communities we operate in – we are aiming to maintain an adjusted effective tax rate of around 25 percent in 2023. In this way, we aim to create sustainable value with our future business activities – together with our employees, partners and stakeholders.