Eni is fair and timely in its tax compliance as a contribution to value creation in the countries where it operates.
Among Eni's traditional values, a fundamental part of the company's mission is its contribution to the creation of long-term value in the countries where it has a presence, which is also expressed in the fair and timely fulfilment of tax obligations in compliance not only with the wording of the law, but also with the spirit of the different tax laws in the jurisdictions where the Group operates.
In order to ensure consistency between the values that inspire the company's mission and its tax management choices, in May 2018 the Board of Directors approved a document summarising Eni's tax strategy and published it on the company website. Said strategy rejects aggressive tax policy choices, including the location of legal entities in so-called tax havens. The Tax Control Framework, a specific tax risk control system which the Chief Financial Officer is responsible for, was also set up to check the consistency between tax management choices and the strategy approved by the Board. The same document provided for the publication of the Country by Country Report, which we are pleased to note has received your approval.
With reference to the issues you have addressed, the following is a summary of the aspects discussed in more detail below:
The 2018 Country by Country Report shows that of the 187 companies controlled by Eni, only 10 are located in states or territories that can be defined as 'tax havens' under Italian tax law. Of these 10 companies, only 6 in 2018, and then 5 in 2019, were subject to the Italian Controlled Foreign Companies (CFC) regulation, which provides subsidiaries located in 'low tax jurisdictions’ being taxed in Italy, as the other 4 were excluded from the CFC regulation due to interpellations obtained from the Italian tax authorities, which ruled out any tax advantage relating to the use of such companies. Of the five remaining companies, only one, Trans Mediterrean Pipeline Company Limited in Jersey (albeit only 50% owned by Eni) generated a positive pre-tax profit of 7.3 million euros in Eni's share in 2018. Of the remaining four companies, three are inactive and one is in the exploratory stage: therefore all have no taxable income. With a consolidated pre-tax Group profit of 10,107 million euros, the contribution of companies subject to Italian CFC regulations is only 0.072%. This percentage was similar in 2017 at 0.088%.
In essence, a single company subject to the CFC regulation (not a subsidiary, but rather 50% owned) over 187 that generates income in a tax haven, and moreover which is fully taxed in Italy.
Consider also that Eni's consolidated tax rate was 59.1% in 2018 and 50.7% in 2017, far higher than the ordinary Italian corporate income tax (IRES) rate of 24%.
Therefore, the assertion that 'Eni makes extensive use of tax-efficient countries' is not objectively supported.
Eni | Trans Mediterranean Pipeline Company Ltd* | Incidenza % su utile consolidato Eni | |
---|---|---|---|
(Euro milioni) | (Bilancio Consolidato) | ||
2018 | |||
Utile (perdita) ante imposte | 10.107 | 7,3* | 0,07% |
Imposte | -5.970 | -1,7 | |
Tax Rate (%) | 59,10% | 23,30% | |
Utile (perdita) netto | 4.137 | 5,6 | |
2017 | |||
Utile (perdita) ante imposte | 6.844 | 6,0* | 0,09% |
Imposte | -3.467 | -1,3 | |
Tax Rate (%) | 50,70% | 22% | |
Utile (perdita) netto | 3.377 | 4,7 | |
*Quota Utile spettante ad Eni SpA |
The Group's activities, particularly those in the Exploration & Production segment, which generate the bulk of its income taxes, are structured to ensure that these taxes are paid in the countries of operation, particularly in those that hold oil and gas reserves, in accordance with the contractual and tax regime of each place. This assertion is in no way contradicted by the use of companies that reside in countries other than those in which operations take place, located mainly in the Netherlands and the United Kingdom for the management of activities in third countries where mineral resources are located. These companies, in fact, are always present in these countries with formally registered branches (permanent establishments), fully subject to local legislation and the taxes paid are the same as those that would be paid by local companies.
The reasons for this corporate structure are not for tax purposes and are identified as follows:
Eni published the Country by Country Report developed by the OECD in order to make the contribution in terms of income tax paid in the jurisdictions where the Group operates transparent and intelligible to various stakeholders by providing summary information on its presence.
First of all, it notes the fact that intra-group services are provided almost entirely by Eni S.p.A. In particular, intra-group services for upstream technical services provided by Italy in 2018 totalled approximately 610 million euros.
Locating insurance business in Ireland generated a net profit of 48.7 million euros in 2018 and does not pursue tax objectives, but rather is the result of a more accessible authorisation regime that this type of business is subject to in Ireland. As far as Eni International BV is concerned, the taxable income identified by you does not derive to a negligible extent from the provision of services but from the provision of financing to the investees of Eni International Holding.
In the sale to Exxon, the capital gains tax of US$ 354 million was determined on the basis of the domestic standard in force in Mozambique. No tax reduction was granted 'after a long negotiation', as stated. The Mozambican tax authorities transparently described the tax determination process in an official announcement on 21 March 2017. Eni did not oppose the determination of the tax despite the taxing power being exclusively attributed to Italy on the basis of the Double Taxation Convention between Italy and Mozambique.
Given that Eni holds a 25% stake in the J/V on Area 4 Rovuma in Mozambique, the company in the UAE is considered as a special purpose entity for the project and is authorised by the Government of Mozambique. The Mozambican state company ENH is also a partner with a 10% stake in the Emirati company. The financing contract with an international consortium of banks was also approved by the government. The application of the 0% withholding tax was also subject to authorisation by the Mozambican Tax Authority. In view of the above facts, to conclude that 'resources equivalent to the withholding tax on interest payments are taken away from the Mozambican government' and that 'resources are indirectly taken away from developing countries' is not a correct objective assessment of the facts considering first and foremost the consent and concurrence of the Mozambican governmental authorities in defining the contractual schemes for gas resource development projects and their ratification. All of Eni's intragroup loans to its Mozambican subsidiaries for the amounts not covered by the bank loan are subject to the 20% domestic withholding tax and are not made through the vehicle company in the Emirates.
The full report, which can be downloaded at the link below, includes: