Regulatory environment and public policy
Our success and ability to create a positive role for alcohol in society depends to a great extent on a balanced regulatory framework that provides a strong foundation for our programmes.
Alcohol is one of the most regulated products in the world. Virtually every aspect of our operations is regulated: production, product liability, distribution, importation, marketing, promotion, sales, pricing, labelling, packaging, advertising, labour, pensions, compliance and control systems, and environmental issues.
This high level of regulation can be an advantage to companies with good corporate governance and the right approach to business ethics, where regulation is balanced to promote economic growth. We work with governments around the world to develop proportionate, effective regulation. Our engagement with government bodies is always professional and governed by our Code of Business Conduct. You can read more about our policy work and positions on alcohol in society in that section of this report; here we look at our policy on tax.
Our approach to tax supports our strategy of international competitiveness, expansion and investment, while balancing the interests of our stakeholders including shareholders, governments, employees, and local communities. We believe that a fair and effective tax system is in the interests of taxpayers and society at large, and can contribute to the fight against poverty and corruption. Advocating for fair and effective tax systems is particularly important in high growth markets, which we expect to account for more than 50% of our business by 2015.
We actively manage and report our tax affairs in a manner that ensures compliance with all fiscal obligations, and is consistent with our own values as well as international best practice guidelines, such as international accounting standards and the OECD (Organisation for Economic Co‑operation and Development) Guidelines for Multinational Enterprises. As part of our tax management we consider the implications of our strategy for Diageo’s wider corporate reputation and long-term sustainability. This year, we paid £4.7 billion in taxes around the world, which includes excise, corporation and payroll taxes.
At the end of 2012, we began one of our regular reviews of our tax policy. This coincided with an increase in the debate on international corporate tax rules, including initiatives at the OECD, the European Union, and the United Nations. Our updated global tax policy is broader in scope to ensure it covers the widest view of tax accountabilities as well as increased transparency for employees and stakeholders concerning our approach to tax.
Our approach to tax, set out in our policy, is based on six key principles:
- We are committed to the effective, balanced and active management of our tax affairs to deliver our business strategy and to create sustainable shareholder value
- We pursue open working relationships with all tax authorities and, as part of this aim, we adhere to a policy of disclosure to relevant tax authorities in respect of all tax matters
- We conduct our business on sound commercial principles and in doing so take account of all relevant costs, including tax
- We undertake tax management activities in countries where we have manufacturing operations, logistics, sales and marketing, brand ownership and management, or a significant corporate presence
- Transactions between Diageo subsidiaries are conducted on an arm’s-length basis according to appropriate transfer pricing rules and OECD principles; this ensures that the group’s global profits are properly allocated to the jurisdictions in which those profits are generated
- Where appropriate, Diageo will express views on the formulation of tax laws either directly or through trade associations and similar bodies.
The policy also sets out guidelines for employees who are involved in, or whose actions impact the management of, Diageo’s tax affairs. The guidelines explain how to ensure that Diageo complies with all relevant laws and regulations. It states that employees should act in a truthful and co‑operative manner when dealing with tax authorities, and that external organisations performing tax services for Diageo must act within the principles of the policy.
To ensure that these guidelines are followed throughout the business, this year we made it compulsory for all employees in our finance department to participate in training to improve their understanding of how tax applies in the business. This included training on transfer pricing, direct and indirect taxes, and the role our employees have in the reporting process and managing tax audits.