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Tax Contribution Report
For the financial year ended 30 June 2018
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Contents
2
Message From Our Chief Financial Officer Page 3
Introduction Pages 4 & 5
Tax Policy, Strategy and Governance Page 6
International Related Party Dealings Page 7
Effective tax rate and reconciliation of accounting profit to income tax payable
Pages 8 & 9
Total Tax Contributions Page 10
ATO Tax Transparency Disclosures Page 11
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Message from our Chief Financial Officer
Welcome to the WorleyParsons Tax Contribution Report for the financial year ended 30 June 2018 (“FY18”). In preparing this report, WorleyParsons has followed the recommendations of the Board of Taxation’s Tax Transparency Code (“Code”).
In adopting this voluntary code we welcome the opportunity to provide users with an outline of our tax activities and our tax contributions across the globe. The report provides information about our approach to tax governance and strategy, details of our international related party dealings, information about our effective tax rate and an overview of our tax contributions for FY18.
Whilst not required by the Code, we also provide commentary to allow a better understanding of the tax information recently published by the Australian Taxation Office (“ATO”) in relation to WorleyParsons Limited’s consolidated income tax return (“ITR”) for the year ended 30 June 2017.
In FY18, the resources and energy markets in which we operate saw encouraging signs of a returning market. This also coincided with the acquisition of our UK Integrated Solutions business.
These improved market conditions and the acquisition had a positive impact our profitability, resulting in higher amounts of corporate tax being paid across the globe in comparison to FY17. Additionally, we have continued to contribute significantly through the collection of employment-related and indirect taxes in the 42 jurisdictions in which we have a presence.
WorleyParsons has a strong commitment to transparency and compliance and we are proud to present this report to highlight our global tax profile and demonstrate that our tax contributions and activities benefit the many countries in which we operate.
In this Report references to ‘WorleyParsons’, ‘the Group’, ‘we’, ‘us’ and ‘our’ refer to WorleyParsons Limited and each of its subsidiaries incorporated in any jurisdiction globally.
Tom HonanChief Financial Officer
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Introduction
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Our business Global presence Adapting to change FY18 financial highlights
WorleyParsons delivers projects, provides expertise in engineering, procurement and construction and offers a wide range of consulting and advisory services to customers in the hydrocarbons, mineral, metals, chemicals and infrastructure sectors. We cover the full asset lifecycle, from the design and creation of new assets through to sustaining and enhancing existing operating assets.
We are focused on responding to and meeting the needs of our customers, delivering sustained economic and social progress and creating opportunities for individuals, companies and communities to help them find and realize their futures.
WorleyParsons is an Australian listed and headquartered company with significant global reach. At the end of FY18, our workforce had grown to 26,050 employees throughout 116 offices in 42 countries.
Having undergone a significant level of change across the business in prior years, we now have a solid platform to better service our customers across the entire asset life-cycle. We have changed how we operate internally as well as how we service our customers. We have shaped our business to best suit the needs of the changing energy and resources industries.
During FY18, the WorleyParsons Group’s reported net profit after tax (“NPAT”) was A$62.2 million compared to last financial year’s NPAT of $33.5 million.
The underlying NPAT (excluding the impact of US tax reform and other one-off restructuring costs) of A$171.4 million was up 39% compared from $123.2 millionlast financial year.
Corporate ResponsibilityParticipating in this report aligns with our Corporate Responsibility commitments. WorleyParsons is committed to making a positive impact in the communities and environments in which we operate. In addition to the indirect economic contribution made through the payment of taxes, WorleyParsons also makes a wider economic contribution through various activities such as the WorleyParsons Foundation and local content procurement programs. As our 26,050 employees spend their wages locally on diverse goods and services, there is a further, indirect economic contribution. We do not measure this indirect economic benefit globally, but it is an important component of our contribution in the 42 countries where we operate.
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WorleyParsons pays taxes in 42 countries over six continents
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Total tax contribution in 4 key operating countries in FY18
AUSTRALIAA$159.6m
UKA$60.2m
USAA$107.1m
CANADAA$101.7m
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Approach to tax strategy and governance
Accepted level of risk in relation to taxation
Management of tax risk Approach to engagement with revenue authorities
WorleyParsons has a substantial business and employment presence in 42 countries and pays or administers a significant amount of tax, including corporate income tax, other business taxes and taxes associated with our employees. We have a strong history of complying with our taxation obligations in these countries.
We have a long established Tax Corporate Governance framework which has been approved by our Board and seeks to ensure that our tax obligations continue to be met. The Tax Corporate Governance Board Policy, which is part of the aforementioned framework, also seeks to formalise and document the responsibilities of the WorleyParsons tax function as expected by the Board, particularly in relation to tax risk management.
Tax risk is like any other risk faced by WorleyParsons in that it should be identified, controlled and reported upon.
WorleyParsons will tolerate a low level of tax risk (such as is inherent in taxation matters). Taxes will be managed with the objective that all tax liabilities properly due under the law are paid, recorded and accounted for.
WorleyParsons will not seek to artificially reduce its tax obligations. However, in order to preserve shareholder value, it will also seek to ensure that it does not enter into arrangements whereby it pays more than the appropriate level of tax, as determined under the laws of the countries in which we operate.
The management of WorleyParsons’ tax risks involves the following key precepts:
▪ WorleyParsons will seek to comply with prevailing revenue laws.
▪ Strong compliance procedures will ensure accurate and complete tax returns.
▪ WorleyParsons should submit all tax returns by their due dates.
▪ All transactions undertaken are subject to a thorough review process and, where required, are escalated to the Board for approval to ensure that the transaction gives rise to a low level of tax risk.
▪ WorleyParsons will maintain professional and, where possible, collaborative relationships with tax authorities.
▪ All intercompany transactions should be undertaken in accordance with the arm’s length principle.
WorleyParsons strongly believes that the fostering of strong relationships with revenue authorities is critical to the proper management of tax risk. We seek to maintain a positive relationship with revenue authorities with the aim of enabling an efficient and collaborative hearing of any tax issues that arise.
Tax policy, strategy and governance
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International related party dealings
WorleyParsons operates through subsidiaries, branches and joint ventures across 116 offices in 42 countries over six continents, all of which are subject to local tax regimes.
Our Australian business (“WorleyParsons Australia”) enters into various international related party dealings with our overseas operations and these dealings are summarized below:
▪ Engineering services – Fees for technical engineering and related services obtained from / provided to a WorleyParsons affiliate in relation to a client project.
▪ Global support services – Fees received and paid for a range of strategic, operational and administrative support services provided to WorleyParsons affiliates on a regional and global basis, including business strategy, quality assurance, marketing, legal, risk management, treasury services, etc. WorleyParsons Australia centralizes and recharges global support service costs for the WorleyParsons Group.
▪ Marketing intangible license fees – Royalties received from WorleyParsons affiliates who license WorleyParsons Australia’s suite of intangible assets.
▪ Intra-group loans – Interest received and paid for intra-group loans typically required to support working capital and other cash requirements across the WorleyParsons Group.
WorleyParsons Australia’s other related party transactions include software license recharges, insurance charges and expense reimbursements.
The following table provides a summary of the total value of these international related party dealings for WorleyParsons Australia for the financial year ended 30 June 2018.
International related party dealing
Primary counterparty countries
Revenues (A$M)
Expenses (A$M)
Engineering services
India, Singapore, New Zealand, UK, US, South Africa, Saudi Arabia, Canada, Brazil, Malaysia
13.6 (21.2)
Global support services
US, Canada, UK, Saudi Arabia, Singapore, India, South Africa, Kazakhstan, New Zealand, Norway
243.9 (151.8)
Marketing intangible license fees
US, Canada, UK, Turkey, Qatar, Saudi Arabia, Netherlands, South Africa, Brazil, Singapore
21.7 -
Intra-group loans (interest)
Canada, US, UK, Malaysia, China, Chile, Bermuda, Netherlands, Oman, Peru
10.9 (29.0)
Other US, UK, Canada, Saudi Arabia, India, Qatar, Kuwait, Oman, Malaysia, China
81.3 (1.4)
Total 371.4 (203.4)
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Effective tax rate and reconciliation of accounting profit to income tax payable
DescriptionAustralia
A$ ’000
Global Group
A$ ’000Accounting profit / (loss) before tax 101,734 205,400Income tax expense (8,227) 129,700Effective corporate tax rate -8.1% 63.1%
WorleyParsons calculates its effective tax rate as income tax expense divided by accounting profit before tax. We note that the effective tax rate for our Australian operations is below the corporate tax rate of 30%. This is mainly due to the fact that the accounting profit before tax of the Australian operations includes repatriated profits from our overseas companies and branches. These profits are not subject to tax under Australia’s tax laws.
WorleyParsons Australia Tax Consolidated Group A$ '000
Profit Before Tax 101,734
At the statutory income tax rate of 30% 30,520
Increase in income tax expense due to:
Interest denial under thin capitalisation rules 709
Controlled foreign company Income 1,500
Performance Rights 2,667
Exempt Branch Expenses 727
Other non-deductible expenses 4,197
Decrease in income tax expense due to:
Exempt overseas dividends (40,999)
Exempt Branch Income (978)
Movements in Accruals / Accruals (5,926)
Other non-assessable income (644)
Income tax expense (8,227)
WorleyParsons Global Group A$ '000
Profit Before Tax 205,400
At the statutory income tax rate of 30% 61,620
Increase in income tax expense due to:
Non-deductible performance rights 2,580
Non-deductible costs of UK Integrated Solutions Acquisition 1,800
Tax expense in relation to US Tax Reform1 81,700
Decrease in income tax expense due to:
Share of losses of equity accounted associates (2,900)
Tax losses not previously recognised (700)
Other permanent differences2 (21,500)
Under provision / (Over provision) for prior financial period 7,100
Tax Expense per financial statements 129,700
Reconciliation of accounting profit to income tax expense
[1] Includes the revaluation and write off of certain deferred tax assets as a result of reforms under the US Tax Cuts & Jobs Act announced in December 2017. [2] Includes an adjustment to recognise that the Group’s profits generated outside of Australia are subject to tax at rates other than 30% (i.e. differential foreign tax rates).
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Effective tax rate and reconciliation of accounting profit to income tax payable2018 income tax expense and effective tax rates
[1] Includes the impact of the revaluation of deferred tax assets as a result of the reduction in corporate tax rate under the US Tax Cuts and Jobs Act. [2] Includes the write off of deferred tax assets in respect of US foreign tax credits as a result of the US Tax Cuts & Jobs Act reforms. [3] In any income year, there will be a difference between the income tax expense calculated and the total income tax payable to the relevant tax authorities during the same period. This is due to a number of factors, such as the timing of corporate tax instalment payments as well as permanent and / or timing differences (where the income and expense recognition criteria is different for accounting and tax purposes).
WorleyParsons Global Group A$ '000
FY18 Tax expense 129,700
Movement in temporary differences
Provisions & accruals1 (74,000)
Carried forward foreign tax credits2 (41,200)
Other temporary differences (4,000)
Deferred tax on intangibles 3,100
Net foreign exchange losses (2,200)
Tax losses carried forward 44,000
Less: under / over provision from prior year (7,100)
Current tax expense / tax payable in relation to FY18 48,300
Income tax refunded per FY18 cashflow statement3 (31,100)
Reconciliation from tax expense to income tax payable
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Total tax contributions
The table below provides a more detailed analysis of our total tax contribution across four of our key operating jurisdictions during FY18.
Australia
A$ '000
Canada
A$ '000
USA
A$ '000
UK
A$ '000
Total
A$ '000Corporate income tax1 6,972 516 4,970 12,457Other taxes:Fringe benefits tax2 1,071 1,071Payroll taxes 20,560 20,560Net GST tax3 32,150 20,700 52,851Employee taxes remitted4 105,785 94,764 106,587 34,564 341,699Total 159,566 101,736 107,102 60,234 428,638
[1] Refers to amounts of corporate income tax paid during FY18 [2] FBT payable for the year ended 31 March 2018.[3] GST collected on sales by WorleyParsons less GST paid on business purchases by WorleyParsons.[4] PAYG/PAYE/salary withholding collected by WorleyParsons.
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ATO tax transparency disclosuresATO public disclosureIn December 2018, the ATO published the following information in respect of WorleyParsons Limited’s Australian ITR for the year ended 30 June 2017.
Total income $1,059,140,025
Taxable income $6,156,842
Tax payable $0
Total Income Total income reported in the ITR represents gross income for accounting purposes – that is, income before any expenses are taken into account. Total income is not an indicator of the real, economic or taxable profits of an organisation. To illustrate this, set out below is a reconciliation of WorleyParsons Limited’s total income to accounting profit for the year ended 30 June 2016.
Total income $1,059,140,025
Less: Total expenses $871,810,651
Accounting Profit $187,329,374
Reconciliation of profit to taxable incomeA reconciliation of WorleyParsons Limited’s accounting profit to taxable income for the year ended 30 June 2017, as reported in the ITR, is set out below:
Companies will often pay tax on their accounting income at a rate lower than the corporate rate of 30%. This may be due to a number of reasons such as permanent and timing differences (where income and expense recognition is different for accounting and tax purposes) and the availability of tax offsets.As illustrated above, our tax payable is calculated at 30% of taxable income, reduced by available tax offsets. Our primary tax offset, which reduced our tax payable relates to foreign income tax offsets for foreign tax paid in another country. We are also entitled to franking credits for dividends which further reduces our tax payable.
Non-assessable income Dividends received by the WorleyParsons Australian consolidated tax group from its overseas subsidiaries and profits from its overseas branches are included in accounting profit before tax. However, these are then excluded in the calculation of taxable income under the Australian tax law. This is to avoid double taxation as the profits have already been subject to tax in the foreign countries.
Foreign income tax offsetsThe WorleyParsons Australian consolidated tax group generates assessable income from overseas which is included in its ITR. In some instances, foreign tax has been paid in another country. Where this occurs, WorleyParsons is able to claim foreign income tax offsets in respect of tax paid on assessable income to avoid double taxation.
A$
Profit before tax 187,329,374
Add:
Franking credits 428,571
Other assessable income 35,689,734
Non-deductible expenses 77,819,576Subtract:
Non-assessable income (200,030,151)
Other deductible amounts (95,080,262)
Taxable income 6,156,842
Tax @ 30% 1,847,052
Less:
Franking credits utilised (428,571)
Foreign income tax offsets utilised (1,418,481)
Tax payable 0
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Keep in touch:
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Please emailMark [email protected]
WorleyParsons LimitedLevel 12333 Collins StreetMelbourne VIC 3000 Australia
www.worleyparsons.com
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