GREENLANDIC ICE AND WATER EXPORT - Naalakkersuisut/media/Nanoq/Files... · 2019-01-22 · Global...
Transcript of GREENLANDIC ICE AND WATER EXPORT - Naalakkersuisut/media/Nanoq/Files... · 2019-01-22 · Global...
GREENLANDIC ICE AND WATER EXPORT
Benchmark of water production in Greenland, Denmark, Canada, Norway, Iceland, UK, Italy, France, Fiji and USA (Alaska)
ICE & WATER
Greenlandic ice and water exportBenchmark of water production in Greenland, Denmark, Canada, Norway, Iceland, UK, Italy, France, Fiji and USA (Alaska)
Published November 2018
Self-Government of GreenlandMinistry of Industry and EnergyTel +299 34 50 00www.businessingreenland.glwww.naalakkersuisut.glP.O. Box 16013900 NuukGreenland
Written by PricewaterhouseCoopers
Layout and production:ProGrafisk ApS
Cover photo: © Sorelle Amore – Visit Greenland
Table of contents
Benchmark of bottled water regulation and taxation . . . . . . . . . . 4
Introduction – Global bottled water market . . . . . . . . . . . . . . . . 5
Greenlandic Ice Cap Water – Potential and locations. . . . . . . . . . . 8
Benchmark summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Ice/water export incentives from the Greenlandic Government . . . 12
Comparison tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Recommendations from benchmark study. . . . . . . . . . . . . . . . . . 15
Benchmark of bottled water regulation and taxationPwC Denmark has prepared a benchmark analysis in relation to the proposed strategy for the production in and export of ice/water from Greenland.
The countries subject to the benchmark analysis are; Greenland, Denmark, Norway, Iceland, France, Italy, Canada, UK, Fiji and USA (Alaska).
The benchmark includes both an analysis of the countries’ national regulation, taxation, duties (etc.)
on bottled and bulk water as well as analysis and scenario calculations of different tax- and duty/royalty models for bottled water that could be implemented in Greenland in order to improve Greenland’s com-petitiveness on the global bottled water market. This leaflet however only includes analysis results concern-ing bottled water but export of bulk water and ice is also possible.
4
Introduction – Global bottled water marketThe demand for bottled water is growing and the bar
chart below shows that a global consumption of bottled
water has had an annual volume increase of 5-7% in
recent years.
Based on recent studies, bottled still unflavored
water has become the leading bottled soft beverage
measured by quantity as compared with car-
bonated beverages. This is illustrated in the circle
diagram just below.
■ Global Bottled Water Segmentations by Product Type 2013
■ Sparkling Flavored 5-7%
■ Sparkling Unflavored 25-27%
■ Still Flavored 3-5%
■ Still Unflavored 67-69%
120,00 8,00%
100,00 7,00%
80,006,00%
60,00
5,00%
40,00
4,00%
3,00%
2,00%
1,00%20,00
0,00 0,00%
■ Global Bottled Water Market 2013-2018 (billion gallons)
Year 2013
80,1
8
Year 2014 Year 2015 Year 2016 Year 2017 Year 2018
Volume Growth Rate
84,7
3
89,8
6
95,6
1
102,
05
109,
15
6,74%6,96%
5,68%5,23%
6,06%6,39%
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The largest volume increases are in China, the USA and
India. However, there has been growth in demand for
bottled still unflavored water in all markets worldwide.
The bar charts below show the increase in demand
for bottled water in different regions of the world.
31,00
32,00
30,00
29,00
3,00%
28,00
2,50%
27,00
2,00%
1,50%
1,00%
0,50%26,00
25,00 0,00%
■ Global Bottled Water in Europe, the Middle East and Africa 2013-2018 (billion gallons)
Year 2013
27,3
4
Year 2014 Year 2015 Year 2016 Year 2017 Year 2018
Volume Growth Rate
27,9
8
28,6
7
29,4
0 30,2
2
31,0
6
2,23% 2,33%2,47% 2,55%
2,80% 2,78%
25,50
25,00
24,50
24,00
23,50
23,00
22,50
3,00%
22,00
2,50%
21,50
2,00%
1,50%
1,00%
0,50%21,00
20,50 0,00%
■ Global Bottled Water in the Americas 2013-2018 (billion gallons)
Year 2013
22,1
5
Year 2014 Year 2015 Year 2016 Year 2017 Year 2018
Volume Growth Rate
22,6
3
23,1
6 23,7
2
24,3
3
24,9
4
2,01%2,17%
2,33% 2,43%2,57% 2,51%
6
60,00
50,00
40,00
30,00
20,00
10,00
0,00 10,00%
10,20%
10,40%
10,60%
10,80%
11,00%
11,20%
11,40%
11,60%
11,80%
12,00%
■ Global Bottled Water in the Asia Pacific Region 2013-2018 (billion gallons)
Year 2013
30,6
9
Year 2014 Year 2015 Year 2016 Year 2017 Year 2018
Volume Growth Rate
34,1
2
38,0
4
42,4
9
47,5
0
53,1
5
11,20%
10,65%
11,47%
11,70%11,80% 11,90%
■ Global Bottled Water Market by Vendor Segmentation 2013
■ Nestlé 11-13%%
■ Danone 8-10%
■ Coca Cola 7-9%
■ PepsiCo 5-7%
■ Others 67-69%
Some of the key drivers in the Global Bottled Water
Market have found to be an increased consumption
of bottled water, contamination of drinking water and
changing of consumer lifestyle.
As for the Global Bottled Water Market, there are a
limited number of major vendors dominating the mar-
ket. Amongst those are Nestlé SA, Danone SA, PepsiCo
Inc., and The Coca-Cola Co. The companies’ market
shares are each illustrated in the circle diagram below.
7
Greenlandic Ice Cap Water – Potential and locationsThe global bottled water market has a high level of
competition. However, due to high quantities of ice cap
water and high water quality with unique selling propo-
sition possibilities, Greenland can prove to be a compet-
itive player in the global water market.
Greenlandic Ice Cap WaterAccording to GEUS (Geological Survey of Denmark and
Greenland): “The Greenland Ice Sheet has covered Green-
land for the last 2,5 million years, growing during the ice
ages and shrinking in the warm periods like the present.
Each year, fresh snow settles on the 1,7 million square
kilometers of inland ice, eventually compacting under the
weight of new layers of snow to become glacier ice. With
enough weight on top, ice crystals deform, recrystallize
and slide causing the glacier ice to move. Over millennia,
the ancient snow is transported through the ice sheet from
the great white plains of the interior to the ice margin.
Here it breaks off as icebergs into the fjords or melts,
causing new fresh layers of ice to resurface constantly.
The age of the ice that melts spans the whole period of the
human civilization and before.”
GEUS is an independent scientific research and ad-
visory institution in Denmark. GEUS has been charged
by the Government of Greenland to identify suitable
locations for extraction of drinking water from meltwa-
ter rivers.
In matter of supply, it is worth mentioning that
glaciers in Greenland and the Greenlandic ice cap are
the largest reservoir of fresh water on earth and second
only to oceans as the largest reservoir for water in total.
This makes melted surface water from large ice caps
and glaciers suitable as high-profile and high-quality
drinking water in large volumes for both bottled water
and bulk water purposes.
Existing activitiesThere are currently five water/ice exploitation licenses
and five water/ice prospecting licenses in Greenland.
Most recently, a company was issued a license for a sea
area in Arsuk fjord in the South of Greenland. The area
has been identified by GEUS as a suitable location for
extracting drinking water from meltwater rivers. Ad-
ditionally, there has been conducted field investigation
and water sampling in the area.
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Benchmark summaryPwC’s benchmark includes the countries: Greenland,
Denmark, Norway, Iceland, Fiji, France, Italy, UK, Canada
and USA (Alaska).
Most of the water-exporting countries govern the
production of bottled water.
Many of the bottled water companies in the global
market have typically started as smaller suppliers and
factories which later have become part of either an
already established multinational company, such as
Nestlé, Danone, An Bev, Coca Cola, etc., or have entered
into a distribution agreement with such multinational
companies.
The benchmark shows, that most of the national tax-
and royalty models subject to the study have duties or
royalties on bottled water. For example, Fiji has water
resource duties based on the exploited liters of water
per month. France has packaging duties and two ac-
cumulative duties on the production of bottled water,
a general water duty (applicable in most cases) and a
mineral water duty (applicable in special cases). Canada
has a water deposit system and consumption or sales
taxes, which are different in each state and province in
Canada. Some provinces in Canada have limitation and/
or restrictions. Alaska has rules on Water Conservation
fee to the Government on water export based on annual
sales in acre-feet. Denmark has water consumption
duties applicable when water is bottled in Denmark.
Both Denmark and Norway have sewage fees and levies
duties directly on the bottle packaging (deposit system).
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Ice/water export incentives from the Greenlandic Government
The Greenlandic corporate tax rate is currently 31.8 %
including the tax surcharge. The Greenlandic withholding
tax can be up to 44%, which is high compared to other
countries. However, special for Greenland is that the
Greenlandic withholding is deductible in the taxable
income. This means that the sum of the corporate tax
and the withholding tax can be limited to a maximum of
44%. Similar to most of the other countries subject to
the study, the applicable withholding tax can be lower if
there is a double tax treaty available. For example, the
double tax treaty with Denmark and Norway reduces the
withholding tax rate to 35%.
In order to make Greenland more competitive on
the global water market, the Greenlandic Government
is considering a change of the tax and royalty system
in order to have a more competitive government take
model. These changes include incentives in form of;
• Lower tax rates for corporate and withholding tax for
ice/water export, with an aggregated maximum of 25%
tax rate (comprising both corporate and withholding
tax) is considered. The 25% tax rate includes the with-
holding tax and no additional surcharge tax
• A possibility of wholly or partially exemption of duties
and corporate taxation for ice and water exporting
companies, which can be agreed in the specific license
granted by Greenlandic Authorities
• The introduction of ice and/or water export licenses
both with or without exclusive rights
• Exemption from payment of remuneration and royal-
ties to the Greenlandic Government in the first 5 years
of an exercise period.
• As part of the ongoing process of making Greenland
more competitive, Greenland has already introduced
new ice and water incentives. This involves a reduced
sales royalty, reduced from 0.10 DKK/liter to 0.04 DKK/
liter. The royalty is deductible in the taxable income.
Government take – comparison from benchmark studyAs mentioned above Greenland’s current effective tax
rate is 31.8% consisting of a flat tax rate of 30% and a
surcharge. Thus, the effective tax on remitted profit at
44% as dividend distributions and royalties are deduct-
ible in the taxable income. This means that the sum of
the corporate tax and the withholding tax can be limited
to a maximum of 44%. The new sales royalty in force is
set to 0.04 DKK/per liter.
When comparing to the other countries subject to the
benchmark analysis, USA (Alaska) has a Federal income
tax rate of 21 % (adjusted to 2018 rate) plus an addi-
tional surplus tax of up to 9.4%. In addition, there are
water conservation fees to the Government based on the
annual sale and calculated on a scale range system. The
conservation fee, however, based on an annual export
of 45 million liters, will only be approximately DKK 700
annually (USD 110).
In relation to Fiji, the Fijian companies listed on the
South Pacific Stock Exchange (SPSE) are subject to a
10% tax rate. Non-resident companies with regional or
global headquarters in Fiji are subject to 17% tax rate.
In addition to the corporate tax, Fiji has exploitation
duties of;
• >3,499,999 liter = 0.04 DKK/liter
• <3,500,000 liter = 0.50 DKK/liter
Canada’s corporate tax rate ranges between 26-31%,
including local taxes.
Denmark has royalties of 0.63 DKK/liter and the corpo-
rate tax is 22%. Norway has sewage fee to the appropri-
ate municipality. Based on the applicable municipality,
the sewage fee can range from 8-12 DKK/m3 up to 20-29
DKK/m3.
Also, packaging duties and fees applies to several
countries.
12
Comparison tablesThe table below and the corresponding graph below
illustrate one scenario of the total government take (in
percentage) for each country, including corporate tax,
withholding tax and royalty/duties based on mutual
sales and production assumptions.
■ Scenario 1 – Tax/royalty assumptions
Annual production 45.3 million liters (12 million gallons)
Sales price DKK 3.00 per liter
Annual production costs DKK 0.76 per liter
Freight costs DKK 0.10 per liter
Dividend distribution DKK 20,000,000
As illustrated in the graph above, the effective govern-
ment take comparison, with the applicable withholding
tax rates before a reduction according to either the EU
Parent/subsidiary directive or an entered double tax
treaty, places Greenland with its current regime as the
country with the third highest government take percent-
age of 35.6% in total.
Alaska places fourth, just below Greenland. Note that,
in relation to Alaska, the government take comparison is
based on the new reduced federal tax rate of 21%.
Since UK has no withholding taxes on outbound divi-
dends and no royalties or duties on ice/water export,
UK is the country with the lowest government take
percentage of 19% in total equivalent to its national cor-
porate tax rate. The government take in certain coun-
tries will be significantly reduced if taking into account
entered double tax treaties. This can change the order.
45
40
35
30
25
20
15
10
5
0
USA-Alaska (2
018 rate)
Norway (2018 rat
e) Italy
DenmarkIce
land Fiji UK
Greenlan
dCanada
France
Corporate tax Withholding tax Royalty/duties
31,9
6,2
3,9
1,9
4,1
0,31,7
0,00075,2
9,16,2
5,25,4
4,53,7
31,024,6
28,422,1 24,0 21,9 20,0 19,7 19,0
1,9
Government take comparison (%)
13
The table below and the corresponding graph below
illustrate another scenario of the total government take
(in percentage) for each country, including corporate
tax, withholding tax and royalty/duties based on mu-
tual sales and production assumptions, but under the
assumption that all profit is distributed as dividends.
As illustrated in the graph above, the effective govern-
ment take comparison under the assumption that all
profit is distributed as dividends and with the applicable
withholding tax rates before a reduction according to
either the EU Parent/subsidiary directive or an entered
double tax treaty, places Greenland, with its current
government take regime, as the country with the fourth
highest government take percentage.
The government take in certain countries will be sig-
nificantly reduced if taking into account entered double
tax treaties. This can change the order.
Due to the fact, that all profit is distributed as divi-
dend and the fact that distributed dividend is deductible
in Greenland, no corporate tax is levied in Greenland is
this scenario. Thus, the total government take consists
solely of duties and withholding taxes.
■ Scenario 2 – Tax/royalty assumptions
Annual production 45.3 million liters (12 million gallons)
Sales price DKK 3.00 per liter
Annual production costs DKK 0.76 per liter
Freight costs DKK 0.10 per liter
Dividend distribution All profit distributed as dividend
45
50
55
60
40
35
30
25
20
15
10
5
0
USA-Alaska (2
018 rate)
Norway (2018 rat
e) Italy
DenmarkIce
land Fiji UK
Greenlan
dCanada
France
31,9
19,2
3,9
17,3
31,0
1,9
43,2
0,0007
21,5
28,4
4,1
18,5
22,1
19,8
24,0
0,3
17,1
21,9
14,4
20,0 19,019,7
7,1
1,7
Government take comparison (%)
Corporate tax Withholding tax Royalty/duties
14
Recommendations from benchmark studyBased on the benchmark study, PwC Denmark has rec-
ommended a new tax model for the Greenlandic Minis-
try of Industry and Energy to consider implementing.
The recommendation suggests a total 25% corporate/
withholding tax and further 4% sales royalties, which
however as a minimum must be a fixed duty pr. unit of
0,04 DKK pr. liter. Each income year, paid Greenlandic
corporate tax and withholding tax are deductible in sales
royalties/duty pr. unit. Sales royalties/duty pr. unit are
deductible in the taxable income.
Greenland has already lowered its existing royalties
to a competitive royalty on sales in the amount of 0.04
DKK/liter which is also deductible in the taxable income.
Inatsisartut (the Parliament of Greenland) has adopted the legal act on commercial exploitation of
ice and water, on the 13th of November 2018.
The legal act implies for instance that the tax level may be reduced for companies who have
a license within the area of ice and water. Additionally, these companies may experience an
exemption from certain taxes and charges for a limited period in the initial phases.
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