Tax Contribution Report For the financial year ended 30 June 2016
Contents 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
MESSAGE FROM OUR CHIEF FINANCIAL OFFICER Welcome to the WorleyParsons Tax Contribution Report for the financial year ended 30 June 2016 ( FY16 ). 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 FY16. 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 tax return for 30 June 2015. When reading this report it is important to understand the economic environment in which WorleyParsons is operating. During FY15, a sharp drop in oil prices and other falls in commodity prices across the energy and resources sectors resulted in a significant contraction of our customers capital and operating budgets and led to many significant project cancellations and deferrals. In FY16 our customers continued to face these challenging market conditions. WorleyParsons has not been immune from the impact of this continued reduction in our customers' capital and operating expenditure, and we have experienced falls in our revenue as well as declines in our operating margins (and therefore decreasing profitability) across our business. These challenging market conditions have had a significant impact on the type and amount of taxes paid by WorleyParsons during FY16. Whilst amounts of corporate income taxes paid have fallen as a result of our decrease in profitability, we continue to make significant tax contributions in the areas of employee related taxes and indirect taxes across the countries in which we operate. Whilst the reduction in corporate tax payable may seem significant in Australia, it is important to note that a large portion of the income recognised in Australia has already been subject to tax in overseas jurisdictions. We are proud to present this report and are committed to providing transparency of our tax profile and to illustrate that our tax contributions and activities benefit the many countries in which we operate. Tom Honan Chief Financial Officer 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.
Introduction Our Business Global Presence New Service Offerings FY16 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 headquartered company with significant global reach. At the end of FY16 our workforce comprised 24,500 employees throughout 118 offices in 42 countries. Our key operations in Australia, Canada, the UK and the US generated approximately 60% of the group s professional services revenue in FY16. Our comprehensive geographic presence enables us to provide our customers with a unique combination of extensive global resources, world-recognized technical expertise and deep local knowledge. In order to improve our service delivery, FY16 saw the launch of specific new service offerings which were developed to deliver further value to our customers. We launched the Advisian business line which has enhanced our existing technical consulting capability. We also integrated the Breakthrough Project Delivery model into the Project Management Consulting offering and accelerated process transfers to our Global Delivery Centres. During FY16 the WorleyParsons Group reported a net profit after tax of $23.5 million (NPAT) compared to last financial year s statutory loss of $54.9 million. The underlying net profit after tax of $153.1 million (excluding $129.6 million of one off costs) was down 37% on our restated financial year 2015 underlying result of $243.1 million. Corporate Responsibility Participating in this report aligns with our Corporate Responsibility commitments. We are 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 24,500 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.
WorleyParsons pays taxes in 42 countries over six continents. Total tax contribution in 4 key operating countries in FY16 AUSTRALIA USA $208.0million $184.3million GLOBAL GROUP EFFECTIVE TAX RATE UK $53.9million CANADA $148.9million 29.5%
TAX POLICY, STRATEGY AND GOVERNANCE 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 and other business taxes, as well as 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 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..
INTERNATIONAL RELATED PARTY DEALINGS WorleyParsons operates through subsidiaries, branches and joint ventures across 118 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 2016. International related party dealing Engineering services Global support services Marketing intangible license fees Intra-group loans (interest) Other Primary counterparty countries China, India, Malaysia, Saudi Arabia, Singapore, Indonesia, USA, UK, Brazil, South Africa USA, Canada, UK, Saudi Arabia, Malaysia, South Africa, Singapore, Oman, Qatar, Norway UK, USA, South Africa, Saudi Arabia, Qatar, Egypt, Netherlands, Chile, Singapore, Canada Canada, USA, UK, China, Bermuda, Saudi Arabia, Netherlands, Vietnam, Papua New Guinea, Malaysia USA, Canada, UK, Saudi Arabia, India, China, Oman, Bermuda, Malaysia, Qatar Revenues (AUD millions) Expenses (AUD millions) 34.2 (43.0) 307.5 (195.2) 17.6-7.0 (27.4) 62.2 (2.1) Total 428.5 267.7
EFFECTIVE TAX RATE AND RECONCILIATION OF ACCOUNTING PROFIT TO INCOME TAX PAYABLE Description Australia A$ 000 Global Group A$ 000 Accounting profit / (loss) before tax 139,842 68,900 Income tax expense 15,417 20,308 Effective corporate tax rate 11% 29.5% 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. Reconciliation of accounting profit to income tax expense WorleyParsons Global Group A$ '000 WorleyParsons Australia Tax Consolidated Group A$ '000 Profit Before Tax 68,900 At the statutory income tax rate of 30% 20,670 Increase in income tax expense due to: Non-deductible performance rights 352 Non-deductible impairment of associates 3,600 Share of losses of equity accounted associates 700 Decrease in income tax expense due to: Non-taxable gain on acquisition (1,350) Tax losses not previously recognised (1,700) Other permanent differences 1 (2,236) Under provision / (Over provision) for prior financial period 272 Statutory Tax Expense 20,308 Profit Before Tax 139,842 At the statutory income tax rate of 30% 41,953 Increase in income tax expense due to: Interest denial under thin capitalisation rules 3,404 Controlled foreign company Income 1,809 Non-deductible foreign exchange losses 2,852 Other non-deductible expenses 1,249 Decrease in income tax expense due to: Exempt overseas dividends (33,327) Exempt branch profits (2,522) Income tax expense 15,417 [1] This includes an adjustment to recognise that the Group s profits generated outside of Australia are subject to tax at rates other than 30%.
EFFECTIVE TAX RATE AND RECONCILIATION OF ACCOUNTING PROFIT TO INCOME TAX PAYABLE Reconciliation from tax expense to income tax payable 2016 Income Tax Expense and Effective Tax Rates Rates WorleyParsons Global Group A$ '000 FY16 Tax Expense 20,244 Movement in Temporary Differences Provisions & accruals 13,700 Carried forward foreign tax credits 28,500 Net foreign exchange losses 31,900 Other temporary differences 11,600 Tax losses carried forward 19,100 Less: under/over provision from prior year (272) Current tax expense / tax payable in relation to 2016 124,772 Income taxes paid per 2016 cashflow statement 2 63,900 [2] Tax payable in relation to FY16 differs from the income taxes paid per the FY16 cash flow statement due to a number of factors. These include amounts of tax that were paid in FY16 that relate to FY15 earnings, taxes in relation to FY16 earnings that are not due until future income years as well as the impact of various income tax offsets. In any income year there may 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 income and expense recognition is different for accounting and tax purposes).
TOTAL TAX CONTRIBUTIONS FY16 was a challenging period for the WorleyParsons business as our customers continued to be impacted by sustained low commodity prices. This has affected the amount and type of taxes we have paid across the globe. Whilst the amount of corporate income taxes paid across the group declined to $63.9m in FY16 as a result of our decrease in profitability, amounts of employee related taxes and indirect taxes remained significant. The table below provides a more detailed analysis of our total tax contribution across four of our key operating jurisdictions during FY16. Australia Canada USA UK Total A$ '000 A$ '000 A$ '000 A$ '000 A$ '000 Corporate income tax 1 9,214 8,646 1,921 3,604 23,385 Other taxes: - Fringe benefits tax 2 1,456 1,456 Payroll taxes 25,699 17,170 42,869 Net GST Tax 3 40,441 1,520 41,962 Employee taxes remitted 4 131,228 140,213 182,427 31,601 485,470 Total 208,038 148,859 184,349 53,895 595,142 Note 1 Refers to amounts of corporate income tax paid during FY16 Note 2 Refers to the FBT liability for the year ended 31 March 2016. Note 3 Refers to the GST collected on sales by WorleyParsons less GST paid on business purchases by WorleyParsons. Note 4 Refers to PAYG/PAYE/salary withholding collected by WorleyParsons.
ATO TAX TRANSPARENCY DISCLOSURES ATO public disclosure In December 2016, the ATO published the following information in respect of WorleyParsons Limited s Australian consolidated income tax return ( ITR ) for the year ended 30 June 2015. Total income $1,888,382,194 Taxable income $32,149,987 Tax payable $20,399 We have provided some additional context in relation to each of these figures below, including a reconciliation of accounting profit to taxable income and tax payable 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 2015. Total income $1,888,382,194 Less: Total expenses $1,833,072,613 Accounting Profit $55,309,581 Reconciliation of profit to taxable income A reconciliation of WorleyParsons Limited s accounting profit to taxable income for the year ended 30 June 2015, as reported in the ITR, is set out below: A$ Profit Before Tax 55,309,581 Add: Franking Credits 2,712,428 Other Assessable income 28,707,604 Non-deductible expenses 184,970,855 Subtract: Non-assessable income (174,585,684) Other deductible amounts (64,964,797) Taxable Income 32,149,987 Tax @ 30% $9,644,996 Less: Franking credits (2,712,428) Foreign income tax offsets (6,912,169) Tax Payable 20,399 Companies will often pay tax on their accounting income at a rate lower than the corporate rate of 30%. This may 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. Non-assessable income Dividends received by WorleyParsons Limited from its overseas subsidiaries and profits from its overseas branches are included in accounting profit before tax but 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 offsets WorleyParsons Limited generates assessable income from overseas which is included in its income tax return. 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. 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 which further reduces our tax payable.
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