Through our economic activities we create value and contribute positively to society. However, being a company of our scale and global presence, we also have a social impact on 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.
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 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 have fully embraced the need to undertake effective Human Rights and Environmental Due Diligence (‘HREDD’) across the entire value chain and have defined those areas and assessment processes that need to be evaluated and strengthened in preparation for the implementation of the ‘German Act on Corporate Due Diligence Obligations in Supply Chains,’ which takes effect in 2023.
We continue to support improvements in the ongoing and independent accreditation of our supply chain-facing social compliance program by the Fair Labor Association (FLA). We have also maintained our commitment to the ‘Sporting Chance Principles’ and our seat on the Advisory Council for the Centre for Sport and Human Rights.
As a sponsor, we have intensified our engagement with FIFA in 2021 over the hosting of the upcoming 2022 FIFA World Cup in Qatar, paying particular attention to stakeholder concerns over human rights and offering our support for the establishment of a Migrant Workers Information Centre. Separately, we have undertaken due diligence of our planned on-ground activation in Qatar and have mapped our supply chain linked to World Cup 2022 production. In the lead-up to the World Cup we have also consulted with FIFA over effective grievance mechanisms.
For the past five years adidas has partnered with the International Organization for Migration (IOM) through its ‘Corporate Responsibility in Eliminating Slavery and Trafficking’ (‘CREST’) initiative to implement responsible recruitment practices in the supply chain. Having identified Indonesia, the Philippines, Thailand, and Vietnam as the key sending countries for foreign migrant workers, in 2021 we provided targeted trainings for private recruitment agencies from these countries to raise their awareness on international standards on responsible recruitment and available certifications. The training was conducted in partnership with IOM, as part of our drive to increase overall awareness of ethical recruitment, improve recruitment fee transparency, and build capability and understanding of the ‘International Recruitment Integrity System’ (‘IRIS’), the global standard for ethical recruitment. We commissioned the IOM in 2021.
Through our annual Modern Slavery Statements, annual progress updates, and other public disclosures, we have shared the actions we have taken to address forced labor in our global supply chain, documenting risks and remedies. 2021 also saw us partnering with the Responsible Sourcing Network for their ‘Yarn Ethically and Sustainably Sourced’ (‘YESS’) initiative helping to enable spinners and textile mills to implement effective due diligence to prevent cotton produced with forced labor. This initiative has been piloted in India and Pakistan.
We continued to receive external recognition for our approach to managing Human Rights. We maintained our leadership position on the 2021 ‘KnowTheChain’ forced labor benchmark as the highest-scoring European company in the benchmark, and in the first ever 2021 Gender Benchmark developed by the World Benchmarking Alliance, we ranked in the top three international apparel companies.
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. Inquiries 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.
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 2021 we were not involved in the public policy regarding tax law or tax law changes in any of the jurisdictions in which we operate.
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.