Socialist government will tax multinationals – Nestle is next

Creating Shared Value Forum 2010

Image by Nestlé via Flickr

The new socialist minister of Tax Thor Möger Pedersen will upgrade the Danish treasury organisation with an extra 160 employees in order to investigate international companies on their tax books.

“It is high time to intervene. The Government will increase the transparency of companies’ payment of corporation tax. All the promise and all must contribute to the Danish economy back on its feet – even the multinationals’ he says

In practice this will mean that multinationals tax information will be posted on the treasuries website and their books will looked into. The claim is that these companies even during the good times up to 2008 (or 2007) did not pay their fair share and now that things are bad they claim even higher tax reductions.

One of the companies that are being named is Nestle a company that have been under scrutiny in several countries around the world for their ability to pay very low taxes. They even have tax manager positions that make around 100’000 Euro with the purpose of reducing the tax paid by the company.

With the prospect of being named and shamed the company is threatening to move their Nordic headquarter to Sweden. Which is strange is this country is even higher taxed than Denmark but I guess they had not really thought the idea fully through. As the Danish CEO of Nestle Fred Holm puts it.

“We have our Nordic headquarters in Denmark, but if we are to be exhibited in this way, then we might as well move to Sweden. Then there is no reason to be in Copenhagen. We want to be here, but we will not be shown, when we just follow the rules, “says Fred Holm, who says that Nestslé has 230 men employed in Denmark.

To be honest I find the idea appealing. What could our society do if we all contributed to the same pot? Some of these companies have made billions of Euros on operating in these countries and have not paid their fair share of tax for several decades. Their ability to hide and shuffle their money around has been remarkable and clever. While I do not think they have done anything illegal they could at least be challenged on their morals and ethics.

On the Nestle website the company proclaims that they are all for share value e.g. the Kramer and Port kind I would guess, but in the interpretation it means that

Creating Shared Value is a fundamental part of Nestlé’s way of doing business that focuses on specific areas of the Company’s core business activities – namely water, nutrition, and rural development – where value can best be created both for society and shareholders.”

So according the Nestle interpretation of CSV it does not include tax so one could hardly claim that they are unethical on that point on the other hand leaving it out does say something about the company mind-set and approach to the societies it operate in.

If a link between profit and society can’t be established it is not in Nestle mind CSR and therefor is tax not included.

I for one will be looking forward to what the Danish government will do and how they will go around the business of making multinationals pay more back to the society that they operate in. One must not forget that there are companies that do pay their fair share and that they are put at a disadvantage by companies that have the ability to shuffle money around. It could actually be a competitive advantage that tax paying companies can utilize in the Danish market as tax evaders leave and create new market opportunities which were out of reach before.

10 things you need to know about doing business in Scandinavia.

The three monarchies that compose Scandinavia ...

Image via Wikipedia

Ten things you need to know about doing business in Scandinavia.

How do you do business in societies that apparently lacks nothing and has a social system, which takes care of, all the citizens needs? Here is a short guide from an insider.

  1. The Scandinavian countries are Sweden, Norway, Denmark, Finland, Iceland and Greenland (at least in my definition). Some business consultants will make you believe that it also concludes Germany, Poland, Russia and the Baltics but this is simply not true. The Scandinavian countries are more then a geographical locality, which also includes culture (we share the same Viking heritage), language (Scandinavians can talk to each other at least at a basic level and people from Norway, Sweden and Denmark can understand each others language). This is an important factor when doing business because if you are able to penetrate one Scandinavian country you stand a better chance to gain access to the rest. While there are cultural differences there are more similarities. One of the things that bind Scandinavians together is the passport union which means that one can travel between the countries without a passport just normal ID. But also the fact that our nations have been at war with each other numerous times for the past 1000 years also plays a big part in our common heritage.
  2. As you might have heard is Scandinavians some of the most taxed people in the world and they apparently would not like it any other way. In general is the ceiling for tax around 60% for high-income groups, while the majority pays from 40 to 50 % tax. This should be seen in combination that Scandinavians have a wide range of possibilities in getting reductions on the tax bill, such as in relation to loan interest rates, if you have to commute long distances or for traveling. In return you get free education, free healthcare, close to no crime and a fairly good working social support system. The tax on business is in the middle of spectrum in Europe so not higher or lower then the European average. This means that the relative economic and social distance from the very rich and the very poor is one of the lowest in the world.
  3. Scandinavians are well educated so if you are looking for a place that will give you a workforce that have a fairly high educational level Scandinavia is a good place to start. In general about 6% of the population have a bachelor or masters degree or higher which is significant more than other parts of the world. The most educated people in Scandinavia are the Finns and Icelanders. Of the total GDP is about 3% going to research and development with the highest investments found in Sweden with 3,8 % and lowest in Norway with 1,6% this is a bit more then the EU average of 1,9%. If you are in a male dominated business you might appeal to the female side in our recruitment system, as about 60% of the population with a higher degree is a women.
  4. A flexible employee system is one of the trademarks of Scandinavia, while there are differences from country to country there is one common approach, which is foreigners to comprehend and understand. The relationship between employer and employee is not governed by the state but is rather controlled and agreed upon by annual, biannual or longer serving agreements. This means that if your employees want something they will tell you and ask for an agreement either through their union or as individuals. On the other hand if you need to fire people of you can go and negotiate directly with the employees and do not have to go through courts or any other third part. Actually is it so that the state help you in the process so that the impact on society will by minimized as much as possible. People will have a one-month termination period in most contracts but it is not uncommon that local agreements are prescribing a three-month period, which also ends any commitment you might have with him or her. In some cases like theft or if the employee does not follow your legal order you can fire people on the spot and does not have to ask anybody (e.g. union or state etc. the union might ask about your motives and argue their case but you will have the right as a leader to make such a judgement) for permission. One might note that the union and safety rep. have some legal protection, which protects them to a larger extend than “normal” employees. This does not mean you can do what you want as you can expect that people will question your motives and if necessary have some sort of legal or ombudsman settlement of the case.
  5. Setting up a business a business in Scandinavia is very easy. I’m not quite sure about the procedure in Finland or Norway, but in the countries I do know about it takes about an afternoon to get started and be done with all the paperwork. There are normally no fees if you start a one-person company while there might be some restrictions if you have a shareholding business etc. There is a host of possibilities for getting advice and guidance through a series of governmental sponsored consulting companies. The state will provide some of the funding if you want to create a star-up company or you might want to join one of the many entrepreneurial clubs and associations, which exist in most major cities.
  6. Euro or no Euro is one thing that is being debated throughout Scandinavia from time to time. Finland is the only country that has adopted the Euro as currency and the rest have adopted different solutions. Denmark have adopted a fixed price policy on the euro which means that when the Euro goes up the Danish Kronor also goes up and visa versa. The same policy goes for Norway while Sweden have chosen to have their currency float which means that it fluxuates quite a lot especially in time of economic turmoil. If one measure the performance of a economy in terms of unemployment then it would seem that the best option is to outside the Euro but invest heavily in currency stability as both Denmark and Norway is doing quite well in terms of employment rates.
  7. It is quite easy to get around Scandinavia there is a well-established logistics system which encompasses all types of transport from bicycles to airplanes. The public transport system is quite complex and not overly expensive while it has been under some competition from low budget flights.
  8. Scandinavia is green not only due to the COP15 meeting but there is a long tradition for recycling and finding environmental solutions to energy problems. In Iceland they utilise the hot water from volcanoes which covers around 75% of their energy needs in Norway which is a oil producer 44% comes from water energy and in Denmark around 18% comes from wind energy. This also means that a large proportion of research resources and knowledge is directed against some form of Green or CSR related activities. In Denmark there is a CSR legislation that requires the biggest companies to implement a CSR policy and monitor progress.
  9. A short power distance means that your future employees will question all your orders, they might carry them out but they would like to know why. Geert Hofstede defined power distance as ‘the extent to which the less powerful member of institutions and organisations within a country expect and accept that power is distributed unequally’. Scandinavians like to think of themselves as much more intelligent than their boss so they will as and keep asking until they get an answer that satisfy them. If you are unable to provide an adequate answer they will present alternatives to your ‘proposal’, which they think is better. You should not think that this is a sign of disloyalty or an attempt to undermine your authority rather it is a sign of confidence in your leadership that your employees participate and improves the decision-making process. If you are unable to have your leadership put into question almost on a daily basis you have not much of a chance in Scandinavian business so be prepared to argue your case, but remember that it is a sign of confidence they they go to you and not somebody else. I have met quite a few none-Scandinavian managers who have a some funny tales to tell about power distance so see it as a opportunity to keep you head cold and your mind warm.
  10. That the justice system is based on thinking people might be strange to put up as a point but it is one of the hallmarks of the Scandinavian justice system that people are free but also accountable for their actions. So do not expect to get sued if your product is used in a highly inappropriate way.