Nestlé is one of the world’s food & beverage companies.

Nestle has achieved success in

the food and beverage industry for a long period of time since its foundation. In 2016,
the manufacturer exceeded US$120 billion in revenue and $28 billion in profits over the
last fiscal year. According to Nestlé's, the main purpose of its operations is enhancing
quality of life and contributing to a healthier future, especially for children all over the
world. In other words, the company inspires people to live healthier and longs for a
better world. This is how it has been contributing to society while ensuring the long-
term success.
Nestlé has today announced plans to open a factory and distribution center in Russia.
The plant will create as many as 240 new jobs over the next five years. The company
plans to invest USD 320 million in the facility. The investment is in line with Nestlé’s
strategy to increasingly focus capital spending on advancing the high-growth food and
beverage categories of coffee, pet care, infant nutrition and bottled water. Distribution
center operations are expected to begin in 2018, with production to follow in 2019.
In order to analyze the tax impact, the ratio ROE before taxes is useful, because it allows
us to study the company without considering the taxes effect.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 (1 − 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒)
𝑅𝑂𝐸 =
𝐸𝑞𝑢𝑖𝑡𝑦
Through the comparison of the ROE and the ROE before taxes we can observe the
impact of the taxes. We can work out the real tax rates that the company pays in order to
see the weight on the earnings before taxes.
 ROE vs ROEbt
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
Year ROE ROE before tax 0.02
2015 0.14 0.11 0
0 0.5 1 1.5 2 2.5
2016 0.17 0.14

As we can see above, there is not a lot of difference between the returns on equity
considering taxes or not considering them. Therefore, both values follow an almost exact
trend. We can work out the real tax rates that the company pays in order to see the
weight on the earnings before taxes.
Year Real Tax Rate
2015 30%
𝑇𝑎𝑥 2016 30%
𝑅𝑒𝑎𝑙 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒 =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥

Real Tax Rate is a ratio that compares the total amount of tax paid with the Earnings
before Taxes, so expresses the tax burden by the corporation. Obviously, it depends
directly on the amount of Earnings that the company obtains, but there are also some
important aspects to be considered, such as changes in legislation in certain countries,
tax deductions and discounts.
Types of tax to be paid
Federal Income Tax
State and/or Local Income Tax
Foreign Tax
Direct Taxes Indirect Tax
 Income Tax Employment Taxes (Payroll Taxes) Paid
Wealth Tax on Employee Earnings
Property Tax Sales Tax on Products and Services Sold
Corporate tax VAT (Value Added Tax)
Dividend tax Service Tax
Gross receipts tax (Revenue) STT (Security Transaction Tax)
Capital gains tax Excise Tax on Use or Consumption
Custom Duty
The standard rate of Russia corporate tax is currently 20 percent, from which 18 percent
goes to the regional authorities and two per cent to the federal government.
Regional Tax (18%) = 69694.92 *18% = 12545.08
Federal Tax (2%) = 69694.92 * 2% = 1393.9
CPT = (Sales Revenue - VAT - Operating & Non-operating Expenses - Losses from
previous financial years that are to be transferred into this financial year) * 20% =
(120,000 - 18305.08 – 10,000 – 18,000 – 3,000 – 1,000) * 20% = 69694.92*20% =
13938.98
Property Tax = 265,000 * 2% = 5300
Dividend tax = 8000 * 9% = 720
Gross receipts tax = 120,000 * 20% = 24000
Capital gains tax = 55,000 * 20% = 11000
Sales Tax = Sales * 18% = 120,000 * 18% = 21,600
VAT = Sales Revenue * 18/118 = 120,000 * 18/118 = 18305.08
To define the investment project, the following assumptions are made:
- The pre-tax rate of return on profitable investment projects is assumed to amount to
20%;
- Investments in five different assets are considered: intangibles (purchase of a patent),
industrial buildings, machinery, financial assets and inventories;
- The economic depreciation rates are 15.35% for intangibles, 3.1% for industrial
buildings and 17.5% for machinery. Financial assets and inventories are not depreciated;
- There are three possible ways of financing the investment: retained earnings, new
equity and debt;
- For a representing average over different forms of investment, equal weights are used
for each asset type (20%). With respect to the financing of the company, the following
weights are applied: 55% retained earnings, 10% new equity and 35% debt financing.
Conclusion
As a conclusion, Nestlé does not pays a high proportion of taxes in relation with the total
amount of earnings that the company obtains. Investigation is also made regarding the
use of tax havens in affecting aggregate tax liabilities and the new project. Consistent
with greater opportunities for tax planning, the results suggest that Nestlé efficiently
deals with tax payment. We can see how the company pays few taxes, what means that
they know how to manage this situation and keep more resources and money within the
organization.
Obviously, it depends directly on the amount of Earnings that the company obtains
during the exercise, but there are also some important aspects to be considered, such as
changes in legislation in certain countries, tax deductions and discounts, and last but not
least, the fact that huge multinational companies have the resources to avoid paying
taxes in countries where tax rates are higher and pay it in countries where rates are
lower.