RESPONSIBLE TAX PRACTICES

Finsif ESG 2015 Anniversary Seminar

CEO Timo Ritakallio, Ilmarinen Mutual Pension Insurance Company

1

AGENDA • Ilmarinen in brief

• Tax climate is changing

• Investor tax responsibility

• Ilmarinen’s tax footprint

• Tax responsibility of investments

2

ILMARINEN TAKES CARE OF THE PENSION COVER OF CLOSE TO 900,000 FINNS

3

511,000 employees

38,500 companies

61,900 self-employed persons

PENSION CONTRIBUTIONS

For pension payments to 318,900 pensioners

For investments in future pensions

KEY FIGURES: RETURNS AND EFFICIENCY

4

4.35 4.17 Premiums written

EUR

billion

Pensions paid

%

Investment returns

34.2

Investment assets

EUR

billion 76

Operational efficiency

6.8

2 times

the solvency limit

Solvency position

93 Client bonuses

EUR

million

%

EUR

billion

RETURN ON INVESTMENTS JANUARY‒MARCH 7.1% Asset allocation and return

5

The modified duration of bond investments is -1.8 year. The total return percentage includes

income, expenses and operating expenses not allocated to any investment types.

Basic

breakdown Risk Return

EUR mill. breakdown %

Fixed-income investments 17,347.5 46.9 1,5746.7 42.6 1.2

Loan receivables 1,491.0 4.0 1,491.0 4.0 1.3

Bonds 14,187.2 38.3 5,270.2 14.2 0.9 1.7

Public corporation bonds 5,371.0 14.5 3,192.7 8.6 2.1

Other bonds 8,816.2 23.8 2,077.5 5.6 0.2

Other money market instruments and deposits 1,669.2 4.5 8,985.4 24.3 10.4

(incl. investment receivables and payables)

Equities and shares 13,928.6 37.6 14,461.8 39.1 14.9

Listed equities and shares 10,905.8 29.5 11,438.9 30.9 17.7 9.6

Private equity investments 1,811.9 4.9 1,811.9 4.9 6.1

Non-listed equities and shares 1,210.9 3.3 1,210.9 3.3 2.3

Real estate investments 3,639.6 9.8 3,639.6 9.8 1.4

Real estate investments 3,149.3 8.5 3,149.3 8.5 1.2

Real estate funds and joint investments 490.3 1.3 490.3 1.3 2.4

Other 2,080.7 5.6 2,724.8 7.4 9.2

Hedge fund investments 649.8 1.8 649.8 1.8 12.7 5.7

Commodity investments -9.9 0.0 85.5 0.2 -

Other investments 1,440.8 3.9 1,989.4 5.4 -

Investments total 100.0 36,572.8 98.9 7.1 3.5

Effect of derivatives 423.6 1.1

Investments at current value 36,996.4 36,996.4 100.0

% % Volatility

Current tax environment

6

TAX CLIMATE IS CHANGING • Companies and investors under

scrutiny by media and public.

– Risks of reputational loss and boycotts.

• Changing regulation leading to financial risks

– Unpredictability to those walking the thin line.

• Trying to keep up with expectations:

– Discussions with stakeholders and experts.

7

INVESTOR TAX RESPONSIBILITY • Special tax status of pension

insurance companies in Finland.

– Income tax paid by pensioners, not insurance companies.

– The idea is to reduce the pressure to increasing pension fees.

• Larger impact through investments’ tax responsibility, especially

– listed companies

– investment funds and structures

8

ILMARINEN’S TAX FOOTPRINT

EUR million Net return

before taxes

Paid taxes at

source and

property

taxes

Refunds of

taxes at

source

Net return

after taxes

Taxes, total

Interest income 410.2 410.2

Dividend income 344.1 8.2 3.8 339.7 4.4

Income from real estate 118.2 8.9 109.3 8.9

Other investment returns 61.4 61.4

Changes in book value 606.0 606.0

Change in difference between

current and book values

661.8

661.8

Total 2,201.7 17.1 3.8 2,188.4* 13.3

9

Ilmarinen’s investment returns and taxes

*Net investment return at current value

EMPLOYERS

Tax transparency of

investment targets, meetings

with management

Income tax

93 € mill.

1.9 € bill.

184 € mill.

2.2 € bill.

1 € bill.

FUNDS RETURN ON

INVESTMENTS

PENSIONS

PENSION RECIPIENTS

STATE

Withholding tax

13.3 € mill.

Income tax

PAYROLL

16.7 € bill.

approx.

3 € bill.

1 € bill.

MUNICIPALITIES approx. 4 € bill.

Taxes related to Ilmarinen’s operations

26.2 € mill. Employees

Property tax

10

Client bonuses

Tax responsibility of investments

TAX IN LISTED COMPANIES • Current situation in Finland

– Only ¼ OMX 25 companies publicly committed to OECD guidelines on tax.

– Only 2 companies discussed tax footprint at Annual General meetings of 2015.

• Our approach

– We endorse tax policy and footprint reporting. Increased transparency is a way to limit aggressive tax planning.

– Looking into tools to identify the “worst of the worst”.

TAX IN FUNDS AND STRUCTURES • Current situation

– Low-tax jurisdictions commonly used in funds and investment structures.

– New multilateral agreements* to make information exchange automatic by 2018.

• Includes the major jurisdictions used in finance (Cayman Islands, Jersey etc).

• Our approach – Plans to look if our investments are aligned with

OECD Base erosion profit shifting BEPS (to be published 11/2015).

– Looking to extend tax due diligence content.

*IGA (Inter-governmental agreement) to implement US FATCA legislation, CRS (Common reporting standard) by OECD and G-20 (similar to FATCA).

CONCLUSIONS

1. Tax climate is changing.

2. Ilmarinen as a responsible investor and owner requires more transparency.

3. We plan to look at our own tax practices compared to OECD BEPS work once published.

14

FOR A BETTER LIFE.