Through economic activities related to our business model, we create value that we need to balance with our environmental impact. However, being a company of our scale and global presence, we also have a social impact on our communities. adidas recognizes its responsibility to respect human rights and the importance of managing the appropriate due diligence to fulfill this obligation as a business. We do this by striving to operate responsibly along the entire value chain, by safeguarding the rights of our own employees and those of the workers who manufacture our products through our Workplace Standards, and by applying our influence to effect change wherever human rights issues are linked to our business activities. Our People
Another aspect that we consider to be material in this context is our responsibility regarding tax. Through taxes, governments have the monetary ability to pursue their objectives and take on the responsibility of further developing their countries.
Since its inception in 1997, our human and labor rights program for our supply chain has been built on the back of intense stakeholder outreach and engagement, seeking to understand and define the most salient issues to address as a company. We continue to support improvements in the ongoing and independent accreditation of our own social compliance program by the Fair Labor Association (FLA). We have also maintained our commitment to the ‘Sporting Chance Principles’ and our place on the Advisory Council for the Centre for Sports and Human Rights. In 2020 we continued to hold a seat on FIFA’s Independent Advisory Board on Human Rights, providing input and recommendations to FIFA on the hosting of the 2022 FIFA World Cup in Qatar.
Over the past year, increased attention has been given to potential forced labor risks linked to China’s Xinjiang Uyghur Autonomous Region (XUAR). Several Western governments held hearings targeting business entities operating in the XUAR; the United States even imposed sanctions. Through its Modern Slavery Statement and other public disclosures, adidas shared the actions it has taken to address forced labor in its global supply chain. With respect to Xinjiang, adidas confirmed that it has never manufactured products in that region. As early as spring 2019, the company had already called on all Tier 2 material suppliers to stop sourcing cotton yarn from the XUAR. Furthermore, adidas supported the Better Cotton Initiative (BCI), which is the primary source of adidas’ cotton, in its decision to no longer certify cotton that comes from Xinjiang.
Five years after the launch of the modern slavery outreach program, we have reached an increased understanding of the potential risks associated with modern slavery in our upstream supply chain. In this time, we have engaged extensively on human rights and forced labor industry benchmarks and have identified and filled gaps in our policies and practices, which has led us to secure the highest ratings in those benchmarks. Through 2020, we strengthened engagement with our Tier 2 suppliers, employing foreign migrant workers as part of our Responsible Recruitment partnership with the International Organization for Migration and led joint remediation efforts at shared supplier sites with leading apparel and footwear brands. adidas was part of a twelve-member expert task force on forced labor and Decent Work, set up to provide recommendations to improve the Better Cotton Initiative’s effectiveness in identifying, preventing, mitigating, and remediating forced labor risks at the cotton farm level. In a multi-stakeholder initiative from 2019 to 2020, we, along with other international brands, supported the FLA and International Organization for Migration in undertaking a supply chain mapping and labor rights assessment of the natural rubber sector in Vietnam. -group.com/s/human-rights
Our approach to tax
We are committed to being compliant with all tax regulations in all jurisdictions in which we operate. We consider the interests of our stakeholders in the business decisions we make in order to ensure the lasting success of our company.
We do not operate through artificial structures or structure our business in ways that are intended to result in tax avoidance. Where we have a presence in so-called low-tax jurisdictions, this is related to our business activities in those jurisdictions, and is not created for the purpose of minimizing our tax burden. While tax is among the many considerations in making business decisions, it is not the main driver in our decision-making process.
Tax management and governance
Given the range of activities and locations we operate in, adidas is subject to a wide range of taxes across the world, including corporate income tax; VAT/GST; employee-related taxes, such as payroll and fringe benefit tax; withholding taxes; property taxes; stamp duties and other taxes. The purpose of our tax function is to support and enable business objectives while ensuring compliance and preventing or minimizing tax risks.
The approach to tax is defined by the Vice President Corporate Tax and is reflected in the tax strategy, objectives, policies, and internal controls. Economic and social impacts are considered in developing and executing our tax strategy. The Corporate Tax team reviews our tax strategy on an annual basis, with significant changes being approved by our Chief Financial Officer (CFO). The CFO is ultimately accountable for compliance with our tax strategy.
Pursuant to our tax policies, the local Directors and Management of each legal entity are responsible for ensuring compliance with tax regulations. The local teams are supported by the company’s Corporate Tax team and tax advisors. The Corporate Tax team exercises global governance and is accountable for our approach to tax. Its main responsibility is to provide global tax advisory, to identify and manage opportunities and risks and ensure tax compliance worldwide. Through partnering with business functions, the Corporate Tax team aims to understand the needs and perspectives of various stakeholders internally and externally and to support business objectives while ensuring continued compliance with tax regulations. Enquiries from and communication with external stakeholders regarding our tax affairs are managed in accordance with our Global Communication Guidelines.
Our Executive Board is updated on tax matters periodically, including a risk review process every six months that also forms part of our tax governance framework. Our CFO and/or the Executive Board, advised by the Corporate Tax team, is ultimately responsible for decisions on topics such as entering into significant or one-off transactions that may give rise to an increase in tax risk (e.g. mergers and acquisitions).
Our ‘Fair Play Code of Conduct’ sets out the options available to employees who detect unlawful or unethical behavior, including anonymous notification or whistleblowing procedures. The adidas AG audit includes the audit of disclosures in respect to tax. -group.com/s/code-of-conduct
Interactions with tax authorities
We seek a cooperative relationship with tax authorities. We respond to information requests, whether formal or informal, and, on a case-by-case basis decide whether to take the initiative in communicating business developments of particular significance to the local tax authorities. During 2020, we were not involved in the public policy regarding tax law or tax law changes in any of the jurisdictions we operate in.
We ensure that the tax profile of our activities is aligned with the substance of the operating structures of our business. Accordingly, transactions have commercial and economic substance and we do not put in place arrangements that are contrived or artificial. Our ‘Transfer Pricing Policy’ requires that intragroup transactions be carried out on an arm’s-length basis. As a result, our profits are derived and taxed in the jurisdictions where value is created.