31 December 2019
Finance Act 2016 introduced legislation which requires certain groups to publish their tax strategy, or parts of their strategy, which are relevant to UK taxation. This document sets out the tax strategy of the Lincoln Electric Group ('LE Group') in accordance with the requirements of Paragraph 16(2), Schedule 19, Finance Act 2016.
This published tax strategy covers the following areas (all in relation to UK taxation):
- Approach to risk management and governance arrangements
- Attitude towards tax planning
- Level of risk tolerated
- Approach toward dealing with the UK tax authorities ('HMRC')
The purpose of this document is to set out the LE Group's policy and approach to UK taxation. This document covers all UK companies within the LE Group ('UK Group'), as listed below:
- Lincoln Electric UK Holdings Limited
- Lincoln Electric (U.K.) Limited
- Metrode Products Limited
- Weartech International Limited
- Lincoln Electric Welding UK Limited (formerly Air Liquide Welding Limited)
This document has been approved by the Board of Lincoln Electric Holdings, Inc. and applies to the accounting year ended 31 December 2019. We review our tax strategy annually, and any amendments will be approved by the Board.
The ultimate parent company of the LE Group is Lincoln Electric Holdings, Inc. a company incorporated in the USA. The LE Group was founded in 1895 in Ohio, US and is renowned for providing cutting-edge solutions to customers and pioneering new technologies in its industry. For over 120 years, the LE Group has been a world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxyfuel cutting equipment and has a leading global position in the brazing and soldering alloys market. Known as the Welding Experts®, our solutions are used across diverse industry sectors in over 160 countries. Headquartered in Cleveland, Ohio, the Group operates 60 manufacturing locations in 19 countries.
The LE Group's business activities are subject to various taxes, including corporate tax, employment tax, VAT and property taxes. These taxes are collected and contributed to the societies where we operate.
As a group we are committed to creating long-term shareholder value through the responsible, sustainable and efficient delivery of our key business objectives. We therefore adopt an approach to tax that supports this strategy and balances the interests of our key stakeholders – employees, suppliers, customers, investors and the wider community. We aim to pursue a tax strategy that is aligned with the LE Group's overall business strategy and code of conduct as we consider that this will protect and enhance shareholder value and uphold the LE Group's reputation.
Approach to risk management and governance arrangements
The UK's tax affairs are managed by the UK Finance Director and the UK Finance Controllers, with support from the local UK finance team, who are responsible for the day-to-day financial operations of the LE Group, including tax and treasury.
The Director of International Tax based in the USA coordinates the LE Group's worldwide tax function including, company-wide tax planning and strategy, and the various in-country efforts for local tax return compliance and audit. Whilst the day-to-day operations are generally left to the local management team, they are overseen by Regional Finance Directors and Vice Presidents of Operations.
The LE Group's tax compliance obligations are performed by external tax advisors who are also responsible for preparing and filing the relevant tax filings and reviewing the internally prepared corporate tax provisions. During the review process, items or transactions which may give rise to tax risks are identified. The tax risks identified are then brought to the attention of the LE Group's management team for further consideration.
In accordance with the OECD's BEPS Action Plan 14 the LE Group prepares an annual Master File and a Country-By-Country Report. These documents are available to be shared between local governments.
Transfer pricing is conducted at an arm's-length which is verified by external tax advisers to ensure compliance with the tax law.
The LE Group's tax compliance team routinely travels throughout the LE Group making tax presentations and conducting tax training to staff to aid training and development. The LE Group recognises the ongoing development of staff within the local finance teams is also key to managing risk. The third party firm engaged to coordinate the UK Group's tax compliance continues in the same capacity.
Tax risks are controlled by various accounting procedures and controls. The LE Group has internal auditors who perform operational audits of the Group's various subsidiaries, focussing on the specific controls in place, such as appropriate authorisation procedures and segregation of duties. There have been no audit findings discovered during the year and the above mentioned controls remain in place throughout 2019.
The LE Group is under continuous audit, where material tax transactions are reviewed on a quarterly basis. This approach continues to be the case for 2019. Such reviews cover legal and tax compliance, interpretation of pertinent tax laws, quantification of benefits and costs, and an assessment of tax risk. The LE Group regularly engages with external tax advisers to seek advice and minimise tax risks as appropriate.
Attitude to tax planning
The LE Group has always had, and continues to maintain, a risk averse attitude and only those transactions with real economic substance and sustainable business purpose are executed. The Group seeks to minimise its tax liability through the use of tax efficient incentives and reliefs where appropriate. Guidance is sought from senior management and external tax advisers regarding those acceptable tax savings and benefits that are available to the LE Group and, if significant, approval and sign-off from Lincoln Electric Holdings, Inc. is sought.
The LE Group has a low appetite for risk and does not enter into any aggressive or abusive tax planning. Any tax strategies are performed under arm's-length terms, for example intercompany cross-border borrowing is carried out in accordance with the same terms and conditions a third party would use. In all cases of cross border tax planning initiatives, the Group realises that a complete and thorough understanding of the local tax laws is critical to the success of the planning undertaken. All tax planning initiatives are developed with third party tax advisers and tax experts.
An Effective Tax Rate ('ETR') is set by the Group's US parent which is based on the various taxes applicable to local level entities in the Group, including the UK Group. ETR management is monitored by the US-based corporate tax group and reviewed quarterly by the US Group's external statutory auditors.
Significant tax planning strategies and initiatives are presented to the senior management team who then vet the costs, risks and associated benefits of the planning. Planning which is deemed to be material and significant in scope is presented to the Board for advance approval and is directed and coordinated by the Group's headquarters. Any tax planning undertaken is rational and prudent, with an eye towards adhering to both the letter and the spirit of the law. The Group seeks to maximise shareholder returns with tax planning which has strong economic substance and appropriate arm's-length dealings.
The Group's statutory auditor demands due diligence in all phases of tax planning and undertakes quarterly reviews of material tax transactions. As a result, all tax planning entered into has ultimately been vetted both internally and by third party advisers.
Level of tax risk
On the basis that the UK Group undertakes very little tax planning, the LE Group is deemed to have low levels of tax risk. Tax risks may occasionally arise in the UK Group including inherent risk due to its international operations, however, the LE Group engages third party tax advisors to help manage these risks. The third party tax advisors also carry out the UK companies' tax compliance obligations who then bring tax issues to the attention of the UK management team should they arise.
The Group's Board of Directors comes from a variety of backgrounds and draws upon their own experience and knowledge in order to benchmark the performance of the LE Group. They expect the financial results of the LE Group to be on par with its peers in the industry. The LE Group's other key stakeholders who have input into risk management (aside from the Board) are the statutory auditors and HMRC.
Other stakeholders of the LE Group expect the activities of the LE Group to be carried out in accordance with national laws, including tax law, and do not exert any influence over the tax risks of the business.
Approach toward dealing with HMRC
The LE Group acts in accordance with all relevant laws and disclosure requirements as necessary to ensure compliance with the UK tax law. This remains the case during 2019.
In accordance with the tax compliance risk framework of HMRC, the LE Group aims to:
- Be open and transparent with HMRC in real time about how it deals with tax compliance risk across all relevant taxes and duties;
- Raise significant compliance issues, uncertainties and/or irregularities with HMRC in real time;
- Promptly provide full, accurate and helpful answers to queries of HMRC;
- Be aware of our obligations across all taxes and duties, seeking assistance as necessary and providing appropriate resources to deal with those obligations;
- Have clear accountabilities up to and including the Board for the management of tax compliance risk and tax planning;
- Have a history of accurate and timely returns, declarations, claims and payments across all relevant taxes and duties;
- Have appropriate tax accounting arrangements in place;
- Not be involved in tax planning other than that which arises from genuine commercial activity;
- Not structure transactions in a way which gives a tax result contrary to the intentions of the UK authorities;
- Tell HMRC about significant transactions involving innovative interpretation of tax law and fully disclose any legal uncertainty; and
- Ensure that the business is not involved with illicit trades.
The LE Group engages third party tax experts to advise on all taxes affecting the Group in the UK and internationally and to prepare the necessary compliance obligations for timely reporting to the tax authorities. The LE Group regularly receives external communication from their third party tax advisers containing pertinent information and legislative updates which are then analysed and implemented.