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On behalf of the Lion Board, I am pleased to share with you Lion’s Tax Transparency Report for the fiscal year ended 31 December 2017

At Lion, we define our core purpose – our central objective – not in terms of shareholder returns, but the value we deliver for society. We exist to champion sociability and help people to live well. That’s why sustainability and trust are core to delivering our business strategy, not something we do on the side.

Lion supports the Australian Government’s Voluntary Tax Transparency Code (“the Code”) as a key platform to better inform public debate about tax policy and to increase transparency for the wider community.

As one of the largest food and beverage companies in Australasia, Lion employs approximately 6,600 people across Australia and New Zealand. In FY17, our total contribution to the economies of both countries was $5.4 billion (inclusive of $1.7 billion of taxes paid) and led to additional employment in our local communities, particularly in the agricultural, tourism and hospitality sectors.

In this report, we provide an overview of our tax strategy, governance and policies, all of which align to Lion’s overall corporate governance and sustainability frameworks. We include commentary regarding our total tax contribution and major international related party transactions. Details of Lion’s effective tax rate and a reconciliation of the accounting profit to income tax expense and to current year income tax payable are also included.

We see this report as an important step in providing transparency and accountability to our stakeholders, and an opportunity to maintain an open dialogue regarding our tax commitments. We recommend
reading this report in conjunction with Lion’s Sustainability Report which can be accessed via our website.

If you would like to provide any feedback, please don’t hesitate to contact us at sustainability.au@lionco.com.

Stephanie Nixon
CFO

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Overview

Lion is one of Australasia’s largest food and beverage manufacturers, with 38 production sites across Australia and New Zealand and a rich history of producing some of our most iconic and well-known brands.

Lion operates various businesses under the following four key segments:

  • Lion Beer Australia
  • Lion NZ
  • Lion Dairy and Drinks
  • Lion Global Markets

These businesses operate (i.e. manufacture, market and/or distribute) across two, broad-based product portfolios:

  • Alcoholic beverages (primarily beer and cider)
  • Dairy and drinks products (milkbased beverages, cheese, yoghurt, cream, custard, juice, water ice).

 


2017 Financial Results

The Lion Group delivered operating earnings before interest and tax (“EBIT”)1 of $820.5 million for the 15-month period ended 31 December 2017. Operating net profit after tax for the same period was $221.6 million.

 


2020 Business Strategy

Lion’s 2020 business strategy is focused on growth at home and in new markets, centred on three pillars:

  • Build our brands to grow the core
  • Accelerate new avenues for growth
  • Customer at the heart

In FY17, Lion acquired minority shareholdings in several businesses including Made by Cow, Ordermentum, Barcats and Schibello Coffee. In addition, Lion opened its first Little Creatures ‘Brewers Lab’ in Shanghai.

1Excludes One Time Items

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Approach to Tax Strategy and Governance

Lion strongly supports the principle that tax risk management is crucial to good corporate governance and, by extension, part of being a good corporate citizen.

Our tax strategy and governance approach has been approved by the Board and aligns to our Corporate Governance Framework. The roles, responsibilities and approval structure under Lion’s Corporate Governance Framework have been
summarised in the diagram below:

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Operationally, the Lion Group Tax function is responsible for implementing, maintaining and reviewing the internal control environment to ensure that the identification, evaluation, management and escalation of tax risk to senior management is performed in an effective and timely manner.

Lion’s approach to tax governance has been summarised in the diagram below. We believe that our tax governance framework is consistent with ‘best practice’, as set out in the Australian Taxation Office’s Tax Risk Management and Governance Review Guidelines.

 


Attitude Towards Tax Planning

Lion’s approach to tax planning is to operate and pay taxes in accordance with the laws in the relevant jurisdictions. Consistent with Lion’s Risk Management Framework, we adopt a conservative approach to tax risk and do not engage in aggressive tax planning.

Tax laws are inherently complex and subject to change and interpretation. Lion seeks independent specialist tax advice as appropriate to ensure all identifiable tax risks are appropriately managed and documented. This could relate to one-off significant business transactions or day-to-day compliance obligations.

 


Engagement With Revenue Authorities

Lion actively engages with revenue authorities in relevant jurisdictions to ensure compliance with ongoing tax obligations, the provision of significant transaction updates and responding to specific reviews and queries.

In Australia we have a constructive relationship with the Australian Taxation Office (“ATO”) and are categorised as a Key Taxpayer under the ATO’s Risk Differentiation Framework (High Consequence, Low Risk). As a Key Taxpayer, Lion engages regularly with the ATO (including prior to the lodgement of the annual income tax return) to provide ongoing assurance over our tax governance practices and to ensure that tax calculations and payments accord with Australia’s tax laws.

 


Lion’s International Related Party Dealings

Lion has international related party dealings with its Japanese parent company, Kirin, as well as with its wholly owned subsidiaries in New Zealand, USA, Singapore, Malaysia, Hong Kong, China, and UK all of which are subject to tax in their respective jurisdictions.

During FY17, Lion’s international related party transactions comprised mainly the sale and purchase of beer, wine and dairy products; centralised back office support services; customer management and marketing support services; and financing activities.

International related party product and service transactions occur primarily between Australia and New Zealand, and to a lesser extent with other Lion international subsidiaries. Financing transactions relate mainly to Lion and its parent company Kirin.

Lion conducts all international related party dealings in accordance with the OECD arm’s length principle and local transfer pricing requirements. Lion maintains contemporaneous transfer pricing documentation to support the arm’s length pricing of these transactions.

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Total Tax Contribution

Taxes represent a significant part of our economic contribution to the overall Australian and New Zealand economies.

Lion paid approximately $1.7 billion in tax during the 15-month period ended 31 December 2017. Of this, $1.3 billion was paid in Australia, $413 million in New Zealand with additional taxes paid in other jurisdictions.

Summary of Lion Taxes
($ millions)
AU NZ2 Other3 Total
Corporate Taxes4 108.88 20.37 0.05 129.30
Fringe Benefits Taxes 8.39 1.26 - 9.65
Land Taxes 3.85 - 0.70 4.56
Payroll Taxes 38.21 - 0.96 39.17
Goods & Services Tax 102.40 62.02 0.65 165.07
Excise, Customs and
Wine Equalisation Taxes
1,064.79 329.25 1.20 1,395.24
Total Taxes Paid 1,326.52 412.90 3.56 1,742.99

2 NZD denominated taxes were converted to AUD using the exchange rate for the 15-month period ended 31 December 2017 of $1.10 from Bloomberg.
3 Other jurisdictions include US, Singapore, Malaysia, China, Hong Kong and UK. Note that no taxes were payable in Hong Kong and UK for the 15-month period ended 31 December 2017. All tax amounts are denominated in AUD.
4 Corporate taxes paid during the period include taxes referrable to the FY16 and FY17 income years as the due date for certain FY16 payments fell within the FY17 income year.

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Reconciliation of Accounting Profit to Tax Expense and to Income Tax Paid or Income Tax Payable

Reconciliation of accounting
profit to income tax expense
2017
Lion
Accounting
Group5
2017
Australian Tax
Consolidated
Group
Income Tax Expense ($ millions)97.4978.00
Profit Before Income Tax ($ millions)319.11253.52
Effective Tax Rate630.55%30.77%

Effective Tax Rate is reconciled as:
Australian statutory tax rate
30.00%30.00%
Adjusted for non-temporary differences:
Prior year under/over provision-2.02%-3.49%
Non-deductible expenses76.95%11.03%
Non-assessable income8-1.52%-2.86%
Other9-2.85%-3.91%
Effective Tax Rate30.55%30.77%

 


Reconciliation of income tax
expense to income tax payable
2017 Lion Accounting Group2017 Australian Tax Consolidated Group
Income Tax Expense
($ millions)
97.4978.00
Adjusted for:
Net deferred tax benefit/(expense)10(31.66)(29.24)
NZ tax rate differential1.420.00
Prior year under/over provision8.498.85
Income tax payable for the period1175.7557.61

5 The Lion Accounting Group differs from the Australian Tax Consolidated Group as it includes all international subsidiaries and non-wholly owned Australian entities.
6 Effective tax rate is calculated as income tax expense divided by profit before tax, pursuant to AASB 112.
7 Lion’s non-temporary non-deductible expenses largely relate to the accounting loss with respect to the write-off of Lion’s investments which is not deductible for tax purposes.
8 Lion’s non-temporary non-assessable income is driven by differences in the treatment for accounting and tax purposes of the disposal of certain assets and/or rights, the treatment of certain investments and non-assessable non-exempt foreign dividend income.
9 Other represents Lion’s tax credit obtained on eligible R&D expenditure, differential on NZ and foreign tax rates, and the initial recognition of carried forward capital losses.
10 Material temporary differences relate to amounts which are assessable or deductible for tax purposes at a different time for accounting purposes. Lion’s material temporary differences are primarily driven by movements in provisions, accruals and different depreciation rates used for tax and accounting purposes.
11 Income tax payable represents cash tax liability paid or payable in relation to the FY17 income year. For completeness, we note that the due date for certain tax payments in relation to FY17 fell within the FY18 income year