Building Public Trust Through Tax Reporting Developing a ... · Foreword 4 Developing a communication plan for tax 6 A review of the FTSE100 for 2014 year ends 7 Tax Transparency

Building Public Trust Through Tax ReportingDeveloping a communication plan for tax

www.pwc.co.uk/tax/tax‑transparency.jhtml

Examples of voluntary tax reporting from UK listed companiesDecember 2015

‘More companies are developing their thinking around additional voluntary disclosures to explain their approach to tax and the contribution they make to the public finances and wider economy.’

Foreword 4

Developing a communication plan for tax 6

A review of the FTSE100 for 2014 year ends 7

Tax Transparency Initiatives 8

A focus on the reconciliation from statutory to effective rate 10

The Tax Transparency Framework 12

Reporting examples from UK listed companies

UK focused companies 14

Multinational companies 22

Extractives 36

Tax Transparency outside the UK 44

Recent publications 46

Key contacts 47

Contents

4 PwC – Tax Transparency

Foreword

Over the last decade, since our first review of tax reporting by large UK listed companies in 2006, there has been significant change in the way tax is viewed. Where tax was once an issue reserved for the tax department, we are now seeing more interest both internally, from the Board, sustainability teams and investor relations departments, and externally with scrutiny from the media, customers, suppliers, employees, Civil Society Organisations (CSOs) and others.

Few would have predicted this change in environment ten years ago, but the global financial crisis and the activities of some CSOs has meant that tax is now one of the top issues for CEOs1. Some say that tax has become a moral issue as the debate considers whether companies pay their “fair share of tax”. Others say that tax is solely a question of law, with the current environment being a consequence of governments seeking to balance the desire to develop a competitive tax regime which attracts and retains investment from multinational corporations (MNCs) with the need to raise revenues.

But with this increased level of attention from non‑tax audiences, assumptions can be made about often complex tax affairs, which can lead to public mistrust of large corporates. Companies and governments operating in this environment are facing the challenge of how to enhance trust and demonstrate the contribution they make to the economy and to wider society.

Supranational bodies, governments and companies have responded to the calls for greater transparency. During the last year, the OECD has published final details on Action Point 13 of the Base Erosion and Profit Shifting (BEPS) initiative, covering country‑by‑country reporting, and the European Commission published a consultation on tax transparency. Closer to home, the 2015 Autumn Statement announced plans to introduce a new requirement for large businesses to publish their tax strategies as they relate to UK taxation.

At a company level, our review of 2014 year ends showed that 56 of the FTSE100 made a public disclosure of their approach to tax. This is not a required disclosure but evidence of companies starting to acknowledge that the transparency debate has moved beyond data to cover a company’s broader tax affairs. Our prediction is for an increase in voluntary disclosure as companies seek to explain their own position, rather than restrict their disclosures to the mandatory requirements which do not necessarily give the full picture.

In the current environment, companies are taking a variety of approaches to tax transparency. At one end of the spectrum, companies have developed a proactive communication strategy, aligning their approach to tax with the core values of the business and including regular meetings with sustainability teams, corporate responsibility and investor relations departments, providing media training for those responding to tax queries, disclosing details of their Total Tax Contribution and improving governance over their tax controls. At the other end of the spectrum, for many companies, there is insufficient business case for increased transparency and consequently, there has been much less activity, if any, in this area.

Andrew Packman

Tax Transparency and Total Tax Contribution Leader

PwC UK

1. http://www.pwc.com/ceosurvey

5December 2015

This publication summarises our review of tax reporting for accounting periods ending in the year to 31 March 2015. We have used our Tax Transparency Framework to identify the companies taking a lead in this area and we applaud those companies for dedicating time and energy to developing voluntary disclosures and driving the debate on tax transparency forwards.

Our review of public disclosure uses a range of criteria, broadly divided into tax strategy and risk management, tax numbers and performance and Total Tax Contribution and the wider impact of tax. This publication provides examples of good practice as regards the reporting for different types of listed companies in the FTSE100 and FTSE250. We have divided the publication into chapters dedicated to companies predominantly operating in the UK, multinational companies and companies operating in the extractive

sector, a sector which has taken a lead in the area of tax transparency. Each of these groups has different complexities in their tax affairs and different mandatory reporting requirements that must be met. Each group has a different set of stakeholders with different needs which may or may not be addressed by improving transparency. Each group has a different level of internal tax resource and technological capability to process data. The extracts reflect this diversity; every company will want to consider how best to respond given its own circumstances.

As always, we are interested to hear your thoughts and to understand how the changing tax landscape is impacting your business, so please do let us know your thoughts.

Andrew Packman


The changing tax environment is prompting companies to develop a strategy for communicating their tax affairs. In tandem with mandatory transparency regimes (see page 8), more companies are developing their thinking around additional voluntary disclosures to explain their approach to tax and the contribution which they make to the economy and wider society.

We’re seeing companies adopting a formalised approach to communication that identifies participants, roles, channels, format and frequency. It’s often not about making a big communication splash, but thinking carefully about your narrative on tax, what information could be useful or sought by different stakeholders, and the best ways to communicate this. It’s also about how the business’s tax strategy fits with the broader purpose and values. We outline below a few of the questions to consider as part of a broader communication plan for tax.

Will voluntary disclosures create value?Additional voluntary disclosures can create value by building trust and enhancing reputation but need to be considered carefully. Those companies in the extractive or financial services industries tend to be more advanced in their thinking because of the more developed mandatory country‑by‑country tax reporting regimes which apply to them. Companies with a brand name, with government contracts or with operations in developing countries also tend to have a business case for more voluntary tax disclosures. Companies should consider their business case and agree the approach.

What’s driving stakeholder interest in your tax?You may feel the tax transparency debate is not relevant to your business, but could there be stakeholders interested in knowing more about the business’ position on tax? For example, internal participants, including the Board, sustainability or corporate responsibility teams, investor and media relations, and employees. What information would be helpful for them? Externally, could there be interest from the media, customers, suppliers, CSOs, analysts and what might drive that interest? Companies should identify and understand likely areas of interest for different stakeholders and think about the disclosures and information that might be necessary.

Where will stakeholders look for disclosures?While many disclosures are in the front half of the annual report, we also see an increasing amount of narrative on tax in the sustainability report, on the web site (referenced from the annual report) and in standalone reports on tax. Four companies now prepare separate publications on their tax affairs and say that the benefit of doing this is the ability to answer queries on tax by directing the questioner to a section of the standalone report. Nine companies publish their tax policy as a separate document on the web. Companies should determine which channels could be used for communication and whether there is merit in proactive communications with particular audiences.

What disclosures might be helpful?Page 7 shows five areas of the tax transparency framework and trends in disclosures in these areas compared to last year.

Companies disclose their approach to tax to address stakeholder interest in the tax principles the company applies and to demonstrate how their tax strategy aligns with the wider business strategy. Communication of governance over tax is also growing (see next page), and is important since a public statement of tax strategy without adequate controls to ensure that it is followed throughout the business is misleading and could damage trust.

The statutory to effective rate of tax reconciliation can be an important way of explaining why a company’s tax charge is different from the statutory rate, and analysts have told us that this is important for them. Page 10 provides examples of four areas to consider in a statutory to effective rate reconciliation. In addition, disclosure of an adjusted profit and adjusted effective tax rate, excluding distorting items, can be a helpful guide to the company’s underlying tax rate.

How will the tax function deal with these new challenges?Companies’ tax functions must evolve to prepare for the changing tax environment. If an organisation has clarity and oversight around the management of its tax affairs, it’s likely that its approach to tax will be aligned to the business strategy and this will help to reduce reputational risk. External stakeholders will in turn be confident that the organisation clearly understands and is committed to delivering the tax strategy. Companies need a consistent message around tax, and tax departments will increasingly work with the rest of the business, including investor relations, corporate responsibility, the Board and the communications teams, to develop this. Each company will have different needs but a plan for developing communications around tax is important.

Developing a communication plan for tax

7December 2015

Tax governance

Total Tax Contribution

Approach to tax

Cash tax reconciliation

Geographic reporting

Tax governance refers to the company’s approach to risk management and the responsibility for oversight of tax affairs. We identified 50 companies providing some details of tax governance procedures, which is an increase of 13 compared to the 37 who disclosed this in 2013.

Stakeholders tell us that they are increasingly looking for confirmation of whether companies have appropriate governance systems and controls in place. They are interested in whether tax strategy and risks are discussed outside the tax department – this may be in the form of a board‑reviewed tax policy or that tax has been discussed by the Audit Committee during the year.

Companies pay far more in taxes than just corporation tax. Total Tax Contribution quantifies the total amount of taxes generated by a company and contributed to the public finances. It clearly distinguishes between taxes borne by companies and taxes collected on behalf of others.

We found that 40 companies provided some information about their Total Tax Contribution, often analysing this number by the types of tax paid. This has increased by 16 companies from the 24 that disclosed this in 2013.

Total Tax Contribution is increasingly being used as a measure of a business’ wider contribution to the economy. Almost half of the FTSE100 include tax in some form of economic value added discussion.

The approach to tax was disclosed in some way by 56 companies, over half of the FTSE100. This has increased from 2013, when the number disclosing their approach to tax was 49.

Approach to tax disclosures tend to set out the main tax principles of the group, and often include a discussion around relationships with tax authorities. Many companies state their attitude towards tax planning, with some going into further detail of their views on low‑tax jurisdictions and transfer pricing.

Reconciliation of cash tax to the tax charge is a voluntary disclosure which sets out the differences between the tax charge and the corporation tax paid by the group.

Still relatively unusual, we found that 14 companies in the FTSE100 explained the differences between these two numbers, which is the same as the number of companies reporting for 2013 year ends.

Six of these companies disclose a numerical reconciliation using a table or ‘waterfall’ chart, while the others gave a descriptive explanation.

Geographic reporting remains on the agenda for governments and regulatory bodies worldwide. There is increased focus on whether tax provisions and payments of large multinationals reflect their commercial operations in each jurisdiction where they operate.

We found that 25 companies are currently providing some breakdown of their taxes around the world, either by region or country. This has increased since 2013 when the number reporting this was 22.

Of the 25 that reported, eight are extractive companies and four are banks. This reflects the mandatory reporting regimes (mentioned on pages 8 and 9) that already apply to these sectors.

2014

562013

49

+7Approach to Tax

2014

502013

37

+13Tax Governance

2014

142013

14

+0Cash tax reconciliation

£

2014

402013

24

+16Total Tax Contribution

2014

252013

22

+3Geographic reporting

A review of the FTSE100 for 2014 year endsThis page shows the results of our May 2015 review of tax disclosures in the FTSE100, looking at 2014 year ends. We looked for five specific areas of disclosures that are included in our Tax Transparency Framework, reviewing annual reports, corporate responsibility reports and websites. The number of companies in the FTSE100 reporting each specific area is shown together with the movement from last year.


Purpose:

A high‑level risk assessment tool for tax authorities.

In 2014, the DJSI introduced tax criteria into its sustainability assessment criteria covering three areas:• Tax strategy: assessing

whether a company details its approach to tax

• Tax reporting: covering transparency over taxes paid, revenue and profit by country or region

• Tax risks: covering financial and operational tax risks

For the three areas, it is possible to disclose information directly to Dow Jones, but public disclosures are regarded as more transparent. Currently, as the tax criteria are new, they make up 2% of the overall assessment, but that weighting may change in future years.

Purpose:

Increasing transparency around the profits made, taxes on profit paid and subsidies received by large companies to improve the trust and facilitate the engagement of shareholders and other EU citizens in companies.

The consultation is intended to gather feedback on which companies should offer greater tax transparency, to whom (tax authorities or public) and what type of information should be disclosed. There is a range of options in the consultation, from ‘no action’ to ‘public disclosure of tax data and corporate tax policies’. The consultation closed in September 2015.

The Government has consulted on a package of measures as part of its ongoing program to change the way large businesses engage with the compliance process.

The 2015 Autumn Statement announced that the Government will legislate to introduce:• a new requirement

that large businesses publish their tax strategies as they relate to or affect UK taxation

• a special measures regime to tackle businesses that persistently engage in aggressive tax planning

• a framework for cooperative compliance

OECD Base Erosion and Profit Shifting

Action Point 13

The Dow Jones Sustainability

Index (DJSI)

EU Shareholder Rights Directive

(legislative proposal)

European Commission public consultation on tax

transparency

HMRC public consultation on large business

compliance

Tax Transparency Initiatives

A high‑level summary of the various tax transparency initiatives impacting UK companies.

SCORING SHEET

Purpose: Purpose:

Who is in scope: Who is in scope:

Other details: Other details:

Data required: Data required:

Is the data publicly available:


Large and/or listed businesses in the EU.

Name, nature of activity, number of employees, revenue, profit before tax, corporation tax paid, public subsidies, assets, disclosure of tax rulings.

If the directive is enacted, public disclosure will be required.

Although passed by the EU Parliament, the proposal is part of the negotiation between the Parliament, the European Commission and the Council of Ministers.

Multinational entities with consolidated turnover in excess of €750m.

Corporation tax paid and accrued as well as other financial data including profit before tax, revenues, employees, capital, assets.

No, available to tax authorities in the UK, for accounting periods starting after 1 January 2016.

Pressure from some organisations for the data to be publicly available.

9December 2015

Purpose:

Promote open and accountable management of natural resources.

Purpose:

Increasing transparency around profits made, taxes paid and subsidies received to regain the trust of EU citizens in the financial sector.

Purpose:

Enhance transparency of payments made to governments to help governments account to their citizens for payments received for extractive activity.

Extractive Industry Transparency

Initiative (EITI)

EU Capital Requirements

Directive (CRDIV)

EU Accounting Directive (EUAD)

Purpose: Purpose: Purpose:

Who is in scope: Who is in scope: Who is in scope:

Other details: Other details: Other details:

Data required: Data required: Data required:




Extractive companies operating in countries that have adopted EITI.

Payments to government with the exact format and content for the disclosure defined by the multi stakeholder group in each country.

Yes.

49 countries are implementing EITI of which 31 are compliant.

Large and listed extractive companies in the EU.

Payments to government arising from extractive activity by project and level of government.

Yes, for financial periods starting after 1 January 2015 or 2016 depending on the Member State in question.

Canada and the US (Dodd Frank) have enacted legislation similar to the EUAD rules. The implementation of the US regulations has however been delayed. The EU directive also contains a review clause to consider extension to other sectors by 2018.

Banks and certain other financial institutions operating in the EU.

Name, nature of activity, number of employees, revenue, profit before tax, corporation tax paid, public subsidies.

Yes, full reporting from 1 January 2015.

The only regime with a mandatory audit requirement.


A focus on the reconciliation from statutory to effective tax rates

There is a need for companies to be able to communicate with stakeholders in an easily understandable way about the tax they pay. Companies do not pay tax at the statutory rate of tax in the country where their head office is located, but the reasons for the difference between statutory and effective rate of tax may be a complex combination of legislative adjustments to the tax base.

IFRS accounting standards1 require companies to explain the relationship between tax expense (income) and accounting profit, but limited guidance is given on the format of that reconciliation2. Often the format of the reconciliation uses standard narrative and is rolled forward from prior years with limited changes to the line descriptions.

We have identified four areas of the statutory to effective rate reconciliation where there may be scope for companies to develop their thinking and explain their tax affairs in a non‑technical way that stakeholders can understand more easily. Our comments are based on both our Building Public Trust Awards for Tax Reporting3 review (from which examples are drawn) and a review of over four hundred statutory to effective rate reconciliations from companies headquartered around the world. Of course, the drivers of the effective rate will differ and it would not be reasonable or appropriate for all companies to adopt the same format.

1. Some companies exclude the impact of joint ventures and associates from profit before tax in the reconciliation table so that this doesn’t become a reconciling item. Under IFRS, a company includes its share of post‑tax profits and losses from joint venture and associates in the group profit before tax. There is no associated tax charge, so this is a reconciling item unless removed from the profit at the outset. (See example p 40).

2. Some companies use a weighted or statutory rate to help understanding of the impact of operations overseas. While many companies operate in a single territory, an increasing number operate in more than one country but the reconciliation is to the statutory rate in the head office territory. A weighted rate, using the statutory rates in all countries of operation, helps the reader to understand the impact of operating internationally. It can be difficult to calculate, if for example, there are losses or amortisation in particular countries.

3. Some companies provide detailed narrative to describe reconciling items. The statutory to effective rate reconciliation is a table reconciling the statutory rate of tax to the effective rate of tax4. There is no “standard” narrative for the items making up the difference between the two rates and the reconciliation can therefore be difficult for a reader to understand and compare. Although the difference between the statutory and effective rate varies for a number of reasons, we found from our review that it was possible to categorise these into eight broad headings, which are shown opposite. Allocating bespoke descriptions of reconciling items to these broad headings may help stakeholders to better understand the nature of reconciling items and whether they are likely to be recurring or one‑off items. While we appreciate that a standard format will not work for everyone, consistent headings, supported by bespoke descriptions could provide clarity.

In addition, we found examples of companies providing separate narrative disclosure of significant items in their reconciliation and linking material items to other areas of the annual report which assists with understanding.

4. Some companies explain the relationship between the tax charge and tax paid more clearly which can help the reader to understand the legislative adjustments that mean cash tax paid is not the same as the tax charge. (See example p 28).

11December 2015

Tax legislation does not tax certain income which is included in the company’s profit and loss account, for example, dividends received.

Tax losses are available to carry forward to offset against future profits but if management believe that losses may be unused, they will not be included in deferred tax assets and appear as a reconciling item.

Similarly, losses that have been previously written off which are then subsequently used will also appear as a reconciling item.

A company with international operations will be subject to corporate income tax at a number of different statutory rates. This category identifies the impact of those different statutory rates compared to the rate in the head office territory.

A reduction in the statutory rate of corporate income tax in a country of operation requires a re‑measurement of a company‘s deferred taxes.

Tax can be complex and a company’s tax calculation may be finally agreed a number of years after it was submitted. During the period of negotiation, the company may have carried a ‘tax provision’ to allow for the uncertainty over the final tax charge for that year. This category reflects that movement in tax provision as a result of prior year settlements.

Tax legislation disallows a deduction for tax purposes of some business expenses which are included as a cost in the company’s profit and loss account, for example entertaining expenses, write offs and some legal expenses.

Fiscal regimes may contain items designed to stimulate the economy such as tax incentives and exemptions. As the CBI statement of tax principles5 outlines, UK business may respond to these and this category indicates the extent to which the business is able to benefit from tax incentives.

This category includes unusual and one off items, but with narrative to provide further detail on the items included.

Non taxable income

Tax losses

Impact of foreign operations

Change in tax rate

Uncertain tax provision adjustments

Non deductible expenses

Tax incentives

Other

1. International Accounting Standard 12.

2. The Standard permits two alternative methods of explaining the relationship between tax expense and accounting profit. (1) A numerical reconciliation between the tax expense (income) and the product of accounting profit multiplied by the applicable rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed. (2) a numerical reconciliation between the average effective tax rate and the applicable tax rate disclosing also the basis on which the applicable tax rate is computed.

3. http://www.pwc.co.uk/building-public-trust-awards.html

4. Or the tax charge resulting from applying the statutory rate to profits before tax reconciled to the actual tax charge.

5. http://www.cbi.org.uk/media/2051390/statement_of_principles.pdf


The Tax Transparency Framework

We use our Tax Transparency Framework each year to carry out a review of the tax reporting in the FTSE350. It includes the elements that we consider to be the basis of good practice in tax reporting. The framework was originally developed following discussions with FTSE companies and different stakeholder groups including governments, investors, analysts and CSOs. It is intended to help companies consider the risks and benefits of greater transparency and what they might want to communicate externally about their tax affairs.

The framework covers three areas of corporate tax affairs – tax strategy and risk management, tax numbers and performance and Total Tax Contribution and the wider impact of tax.

Tax strategy and risk managementIn reviewing a company’s tax reporting we are looking for discussion of the approach to tax, identification of risks and tax strategy. This includes disclosure of policy in areas which are key to that particular business such as tax planning, transfer pricing, low‑tax jurisdictions and relationships with revenue authorities.

Explanations of internal governance processes are recognised as well as evidence of oversight for tax at Board or audit committee level.

Historically found in the front end of annual reports, we are now seeing more webpages and reports dedicated to companies’ approach to tax.

Tax numbers and performanceThe second pillar of the framework is most closely aligned to the required disclosures in the accounts under financial reporting standards and other applicable regulations. We look for a clear explanation as to why the current tax charge is not simply accounting profit at the statutory rate or some insight into the effective tax rate. We also look for a clear reconciliation from cash tax to the charge and forward looking measures, such as forecast accounting or cash tax rate.

Usually placed in the annual report, some companies make innovative use of graphics to illustrate and contextualise the numbers.

Total Tax Contribution and the wider impact of taxThe third area we review looks away from traditional accounting disclosures towards understanding the wider picture. Discussion of how tax impacts the business strategy and details of advocacy or lobbying activity are recognised. We look for additional insight into taxes borne and collected other than corporation taxes and the company’s economic value add.

This pillar of the framework also includes country‑by‑country reporting and discussion of taxes contributed to developing countries – an area where we have seen an increase in both mandatory and voluntary reporting in recent years.

13December 2015

1.Tax strategy and risk management

• Discussion of tax objectives and strategy

• Disclosure of policies in key areas for the business, for example, tax planning and transfer pricing

• How the tax strategy and function are managed and who has responsibility for governance and oversight

• Discussion of material tax risks

2.Tax numbers and performance

• Clear reconciliation of the tax charge to the statutory rate

• Discussion of cash tax payments and how they relate to the tax charge

• Forward‑looking measures for tax, such as an indication of the future direction of the company tax rate

3.Total Tax Contribution and the wider impact of tax

• Show how tax impacts wider business strategy and company results

• Discussion of advocacy activities on tax

• The impact of tax on shareholder value

• Communication of the economic contribution of all taxes paid.


1. UK focused companies

15December 2015

Many of the UK’s largest companies remain essentially British businesses with staff, operations and customers predominantly located onshore. Across a range of sectors, these companies have relatively simple group structures and fewer overseas tax entities.

Complex policy areas such as transfer pricing and low‑tax jurisdictions are less relevant in the day‑to‑day operations of the tax function. As a result, tax may be lower risk in comparison to multinational peers and so strategy and governance disclosures need not be as detailed.

The statutory disclosures and commentary on effective tax rate are not significantly affected by differing overseas tax rates.

There is no substantive geographic split of taxes paid that can be disclosed. However, a Total Tax Contribution analysis and economic impact reporting can give a clear and quantifiable message about what that company contributes to the UK.


Tax strategy and risk management


Directors’ Report

75

Directors’ interestsThe beneficial interests of the Directors and their families in the shares of the Company are shown in the Annual Report on Remuneration on pages 68 and 69. The Company’s Register of Directors’ Interests contains full details of Directors’ interests, shareholdings and options over ordinary shares of the Company.

During the year, no Director had any material interest in any contract of significance to the Group’s business.

Directors’ indemnitiesThe Directors are entitled to be indemnified by the Company to the extent permitted by law and the Company’s Articles of Association in respect of all losses arising out of or in connection with the execution of their powers, duties and responsibilities. The Company has executed deeds of indemnity for the benefit of each Director in respect of liabilities which may attach to them in their capacity as Directors of the Company. The Company purchased and maintained Directors’ and Officers’ liability insurance throughout 2014/15, which has been renewed for 2015/16. Neither the indemnities nor the insurance provide cover in the event that the Director is proved to have acted fraudulently.

Employment policiesThe Company is committed to an equal opportunities policy for recruitment and selection, through training and development, performance reviews and promotion through our ‘A Great Place to Work’ strategy. The Company has well developed policies for the fair and equal treatment of all colleagues and the employment of disadvantaged persons. During the year, a number of training courses have been held to ensure that our policies are understood throughout the organisation. We will adapt and retrain colleagues who have become disabled during their employment. See page 50 for further information on our diversity strategy.

As well as creating jobs we are committed to providing a workplace where people feel they are given the right opportunities to succeed in a safe, healthy and respectful environment. We know this is important and this is the reason why a Great Place to Work is one of our five values. Our 20x20 Sustainability Plan includes a number of commitments within the category; for further information see our website at http://www.j-sainsbury.co.uk/responsibility/factsheets/.

Human rightsThe Company does not have a specific human rights policy but fairness and integrity are an important part of the responsible way we run our business, as shown by the values and policies described above and throughout this report. In addition, our customers want to be confident that the people who make and sell our products are not being exploited, or exposed to unsafe working conditions. Our Code of Conduct for Ethical Trade covers the employment practices we expect from our suppliers, both in the UK and abroad. As we are a founder member of the Ethical Trading Initiative (‘ETI’), our Code of Conduct is consistent with the ETI Base Code and national and international laws. For further information on this Code of Conduct see our website at http://www.j-sainsbury.co.uk/suppliers/ethical-trading/.

DonationsThe Company made no political donations in 2015 (2014: £nil).

See page 23 for details of the Company’s charitable donations.

Essential contractsSainsbury’s has contractual and other arrangements with numerous third parties in support of its business activities. None of the arrangements is individually considered to be essential to the business of Sainsbury’s.

TaxationThe Company complies with relevant tax laws, regulations and obligations regarding the filing of tax returns, payment and collection of tax. Sainsbury’s does not undertake any tax planning schemes that seek to use so-called ‘tax havens’ for aggressive tax planning and for the purpose of tax avoidance. Sainsbury’s aims to develop an open, honest relationship with the tax authorities and involve them at an early stage should any complex tax issues arise.

The taxation policy is reviewed annually by the Board. Tax is a key item on the Audit Committee agenda and is discussed quarterly where large or complex tax items will feature, together with compliance and key risk management updates.

All of Sainsbury’s stores are based in the UK, and all our sales are generated here. As such, substantially all (more than 99 per cent) of our taxes are paid here. The Group also includes companies based in the following jurisdictions: Hong Kong, China, India and Bangladesh – these offices source many of our non-food products, and local taxes of £1 million were paid in the year (2013/14: £1 million); Isle of Man – our insurance company is based here for regulatory reasons, as are many other insurance companies; Ireland, Jersey, Guernsey, USA – these companies are all dormant and accordingly do not pay any tax. There are also other Group companies that were incorporated in Ireland, USA, Jersey and the Cayman Islands that are UK tax resident, meaning that all relevant taxes are payable to the UK Government.

Post balance sheet eventsEvents after the balance sheet are disclosed in note 38 on page 140 of the financial statements.

Financial risk managementThe financial risk management and policies of the Group are disclosed in note 28 on pages 117 to 123 to the financial statements.

Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 1 to 39. The financial position of the Group, its cash flows and liquidity are highlighted in the Financial Review on pages 31 to 39. The Group manages its financing by diversifying funding sources, structuring core borrowings with long-term maturities and maintaining sufficient levels of standby liquidity. Full details of the Group’s financing arrangements can be found in note 20 on pages 109 to 111 to the financial statements. In addition, notes 28 and 29 on pages 117 to 129 to the financial statements include the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

Management are satisfied that stress tests on the future liquidity of the Group do not indicate a going concern risk.

As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current challenging economic outlook. The Directors have a reasonable expectation that the Company has sufficient resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements which are shown on pages 82 to 140.

Disclosure of information to auditorsEach of the Directors has confirmed that, so far as he/she is aware, there is no relevant audit information of which the auditors are unaware. Each Director has taken all steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the auditors are aware of that information.

Independent auditorsErnst & Young LLP have expressed their willingness to be appointed as auditors of the Company. Upon the recommendation of the Audit Committee, resolutions to appoint them as auditors and to authorise the Directors to determine their remuneration will be proposed at the AGM.

By order of the Board

Tim FallowfieldCompany Secretary and Corporate Services Director

5 May 2015

Directors’ Report

75

Directors’ interestsThe beneficial interests of the Directors and their families in the shares of the Company are shown in the Annual Report on Remuneration on pages 68 and 69. The Company’s Register of Directors’ Interests contains full details of Directors’ interests, shareholdings and options over ordinary shares of the Company.

During the year, no Director had any material interest in any contract of significance to the Group’s business.

Directors’ indemnitiesThe Directors are entitled to be indemnified by the Company to the extent permitted by law and the Company’s Articles of Association in respect of all losses arising out of or in connection with the execution of their powers, duties and responsibilities. The Company has executed deeds of indemnity for the benefit of each Director in respect of liabilities which may attach to them in their capacity as Directors of the Company. The Company purchased and maintained Directors’ and Officers’ liability insurance throughout 2014/15, which has been renewed for 2015/16. Neither the indemnities nor the insurance provide cover in the event that the Director is proved to have acted fraudulently.

Employment policiesThe Company is committed to an equal opportunities policy for recruitment and selection, through training and development, performance reviews and promotion through our ‘A Great Place to Work’ strategy. The Company has well developed policies for the fair and equal treatment of all colleagues and the employment of disadvantaged persons. During the year, a number of training courses have been held to ensure that our policies are understood throughout the organisation. We will adapt and retrain colleagues who have become disabled during their employment. See page 50 for further information on our diversity strategy.

As well as creating jobs we are committed to providing a workplace where people feel they are given the right opportunities to succeed in a safe, healthy and respectful environment. We know this is important and this is the reason why a Great Place to Work is one of our five values. Our 20x20 Sustainability Plan includes a number of commitments within the category; for further information see our website at http://www.j-sainsbury.co.uk/responsibility/factsheets/.

Human rightsThe Company does not have a specific human rights policy but fairness and integrity are an important part of the responsible way we run our business, as shown by the values and policies described above and throughout this report. In addition, our customers want to be confident that the people who make and sell our products are not being exploited, or exposed to unsafe working conditions. Our Code of Conduct for Ethical Trade covers the employment practices we expect from our suppliers, both in the UK and abroad. As we are a founder member of the Ethical Trading Initiative (‘ETI’), our Code of Conduct is consistent with the ETI Base Code and national and international laws. For further information on this Code of Conduct see our website at http://www.j-sainsbury.co.uk/suppliers/ethical-trading/.

DonationsThe Company made no political donations in 2015 (2014: £nil).

See page 23 for details of the Company’s charitable donations.

Essential contractsSainsbury’s has contractual and other arrangements with numerous third parties in support of its business activities. None of the arrangements is individually considered to be essential to the business of Sainsbury’s.

TaxationThe Company complies with relevant tax laws, regulations and obligations regarding the filing of tax returns, payment and collection of tax. Sainsbury’s does not undertake any tax planning schemes that seek to use so-called ‘tax havens’ for aggressive tax planning and for the purpose of tax avoidance. Sainsbury’s aims to develop an open, honest relationship with the tax authorities and involve them at an early stage should any complex tax issues arise.

The taxation policy is reviewed annually by the Board. Tax is a key item on the Audit Committee agenda and is discussed quarterly where large or complex tax items will feature, together with compliance and key risk management updates.

All of Sainsbury’s stores are based in the UK, and all our sales are generated here. As such, substantially all (more than 99 per cent) of our taxes are paid here. The Group also includes companies based in the following jurisdictions: Hong Kong, China, India and Bangladesh – these offices source many of our non-food products, and local taxes of £1 million were paid in the year (2013/14: £1 million); Isle of Man – our insurance company is based here for regulatory reasons, as are many other insurance companies; Ireland, Jersey, Guernsey, USA – these companies are all dormant and accordingly do not pay any tax. There are also other Group companies that were incorporated in Ireland, USA, Jersey and the Cayman Islands that are UK tax resident, meaning that all relevant taxes are payable to the UK Government.

Post balance sheet eventsEvents after the balance sheet are disclosed in note 38 on page 140 of the financial statements.

Financial risk managementThe financial risk management and policies of the Group are disclosed in note 28 on pages 117 to 123 to the financial statements.

Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 1 to 39. The financial position of the Group, its cash flows and liquidity are highlighted in the Financial Review on pages 31 to 39. The Group manages its financing by diversifying funding sources, structuring core borrowings with long-term maturities and maintaining sufficient levels of standby liquidity. Full details of the Group’s financing arrangements can be found in note 20 on pages 109 to 111 to the financial statements. In addition, notes 28 and 29 on pages 117 to 129 to the financial statements include the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

Management are satisfied that stress tests on the future liquidity of the Group do not indicate a going concern risk.

As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current challenging economic outlook. The Directors have a reasonable expectation that the Company has sufficient resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements which are shown on pages 82 to 140.

Disclosure of information to auditorsEach of the Directors has confirmed that, so far as he/she is aware, there is no relevant audit information of which the auditors are unaware. Each Director has taken all steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the auditors are aware of that information.

Independent auditorsErnst & Young LLP have expressed their willingness to be appointed as auditors of the Company. Upon the recommendation of the Audit Committee, resolutions to appoint them as auditors and to authorise the Directors to determine their remuneration will be proposed at the AGM.

By order of the Board

Tim FallowfieldCompany Secretary and Corporate Services Director

5 May 2015

MARKS AND SPENCER GROUP PLC

TAX GOVERNANCE STATEMENT

Our approach is to manage our global tax affairs in a manner that is in keeping with our longstanding values and aligned to our shareholders’ interests. We take our responsibility to pay our fair share of tax seriously, and our approach therefore ensures:

a) that tax matters are proactively managed by having a clear internal governance framework, robust business controls and processes, and maintenance of an open and regular dialogue with the tax authorities;

b) that we fully comply with the law so that tax returns and payments are made on time and proper disclosure is made to the tax authorities; and

c) that any tax planning is based on commercial business activity. The Chief Finance Officer is responsible for management of the tax affairs of the Group. She has authority to approve any matter where the amount of tax is less than £5m. Beyond this amount, approval must be obtained from the Executive Board and where the amount of tax exceeds £15m additional approval must be sought from the full Board of the Company. Professional opinions are required from reputable independent external advisers on any matters where the amount of tax involved is significant and the tax treatment uncertain. The Audit Committee receives an annual report on the management of the Company’s tax affairs, with any major issues arising in the intervening period brought to their attention separately.

1.

2.

Intu Properties plc – Annual Report 2014 intugroup.co.uk

Strategic report

46

Financial reviewcontinued

Other information Tax policy position As a Real Estate Investment Trust (REIT), tax on property operating profits is paid at shareholder level to the UK government rather than by Intu itself. REIT status brings with it the requirement to operate within the rules of the REIT regime (for further information see Glossary).

As a good corporate citizen we believe that paying and collecting taxes is an important part of our role as a business and our wider contribution to society.

Intu does not employ tax avoidance strategies, or undertake transactions whose sole purpose is to abuse the tax system. We are committed to acting with integrity and transparency in all tax matters and have an open, up front and no surprises policy in dealing with HMRC. The Group seeks pre-clearance from HMRC in complex areas and actively engages in discussions on potential or proposed changes in the taxation system that might affect property tax and REIT legislation.

The Group pays tax directly on overseas earnings, any UK non-property income under the REIT rules, business rates, and transaction taxes such as stamp duty land tax. In the year ended 31 December 2014 the total of such payments to tax authorities was £26 million, of which £25 million was in the UK, £0.5 million in the US and £0.5 million in Spain. In addition, the Group also collects VAT, employment taxes and withholding tax on dividends for HMRC and the Spanish tax authorities. Business rates, principally paid by tenants, in respect of the Group’s UK properties amounted to around £297 million in 2014.

DividendsThe Directors are recommending a final dividend of 9.1 pence per share bringing the amount paid and payable in respect of 2014 to 13.7 pence, unchanged from 2013 as adjusted to reflect the 2014 rights issue (see note 17). A scrip dividend alternative will continue to be offered. Details of the apportionment between the PID and non-PID elements per share will be confirmed in due course.

Matthew RobertsChief Financial Officer27 February 2015

intu Chapelfield

Refinancing activity has

reduced the average cost of debt

to 4.7 per cent

intu Uxbridge

Intu Properties plc – Annual Report 2014 intugroup.co.uk

Strategic report

46

Financial reviewcontinued

Other information Tax policy position As a Real Estate Investment Trust (REIT), tax on property operating profits is paid at shareholder level to the UK government rather than by Intu itself. REIT status brings with it the requirement to operate within the rules of the REIT regime (for further information see Glossary).

As a good corporate citizen we believe that paying and collecting taxes is an important part of our role as a business and our wider contribution to society.

Intu does not employ tax avoidance strategies, or undertake transactions whose sole purpose is to abuse the tax system. We are committed to acting with integrity and transparency in all tax matters and have an open, up front and no surprises policy in dealing with HMRC. The Group seeks pre-clearance from HMRC in complex areas and actively engages in discussions on potential or proposed changes in the taxation system that might affect property tax and REIT legislation.

The Group pays tax directly on overseas earnings, any UK non-property income under the REIT rules, business rates, and transaction taxes such as stamp duty land tax. In the year ended 31 December 2014 the total of such payments to tax authorities was £26 million, of which £25 million was in the UK, £0.5 million in the US and £0.5 million in Spain. In addition, the Group also collects VAT, employment taxes and withholding tax on dividends for HMRC and the Spanish tax authorities. Business rates, principally paid by tenants, in respect of the Group’s UK properties amounted to around £297 million in 2014.

DividendsThe Directors are recommending a final dividend of 9.1 pence per share bringing the amount paid and payable in respect of 2014 to 13.7 pence, unchanged from 2013 as adjusted to reflect the 2014 rights issue (see note 17). A scrip dividend alternative will continue to be offered. Details of the apportionment between the PID and non-PID elements per share will be confirmed in due course.

Matthew RobertsChief Financial Officer27 February 2015

intu Chapelfield

Refinancing activity has

reduced the average cost of debt

to 4.7 per cent

intu Uxbridge

3.

Intu Properties explains the nature of the REIT regime and how this affects its tax payments. It gives details of a ‘no surprises’ relationship with HMRC, and highlights the engagement when there are proposed changes to taxation under the REIT regime.

J Sainsbury sets out the domestic nature of its business in terms of sales and where taxes are paid. It explains the scope and commercial rationale for its offshore entities.

Marks and Spencer aligns the approach to tax with the company’s longstanding business values. It highlights the internal governance framework in place, and provides details of the Audit Committee’s oversight over tax.

17December 2015

Source: 1. J Sainsbury plc, Annual Report and Financial Statements 2015 – page 752. Marks and Spencer Group plc, Tax Governance Statement3. IntuProperties plc, Annual Report 2014 – page 464. Provident Financial plc, Annual Report and Financial Statements 2014 – page 965. Royal Mail plc, Annual Report and Financial Statements 2014‑15 – page 34

Liquidity riskThe risk that the group will have insufficient liquid resources available to fulfil its operational plans and/or meet its financial obligations as they fall due.

Mitigation Progress in 2014• The model of ‘borrowing long and lending short’ results in a positive maturity mismatch,

which means the duration of the receivables book is significantly less than the average duration of the group’s funding. This profile significantly reduces the liquidity risk for the group.

• A board-approved policy is in place to maintain committed borrowing facilities which provide funding headroom for at least the following 12 months, after assuming that Vanquis Bank will fully fund its receivables book through retail deposits.

• The group’s strategy of maintaining committed facility headroom and diversifying funding sources has resulted in a strong balance sheet position.

• Liquidity is managed by an experienced central treasury department.

• Vanquis Bank maintains a liquid assets buffer in line with the PRA’s liquidity guidelines.

• There is daily monitoring of liquid resources.

• The group has continued to make excellent progress in strengthening its funding base in 2014.

• The group exercised its option in January 2015 to extend its £382.5m syndicated bank facility by 12 months to May 2018.

• Retail deposits have increased from £435m to £580m during 2014, representing 53% of Vanquis Bank’s receivables against a PRA permitted level of 100%.

• Headroom on committed facilities of £112m as at 31 December 2014 which, together with the recent extension of the syndicated bank facility and the retail deposits programme at Vanquis Bank, is sufficient to meet projected growth and contractual maturities until May 2018.

• The group remains an investment grade credit, with a credit rating of BBB with a negative outlook.

Financial riskThe risk that the group suffers a loss as a result of unexpected tax liabilities. • Tax authorities are placing greater emphasis on taxation controls in assessing tax risk and the associated level of scrutiny placed on companies.

Mitigation Progress in 2014• The group has a board-approved tax strategy which is aligned with its mission and core

values and which has been shared with HMRC. The strategy sets out the group’s overall approach to tax, including its tax governance framework, how tax risk management is embedded within the group’s overall corporate governance structure and how the group ensures it complies with the tax obligations in the territories in which it operates.

• Policies and procedures are in place which support the management of key tax risks, along with documented systems, processes and controls to support the UK taxes which the group pays and the preparation and submission of related tax returns. This includes policies and procedures which seek to ensure that the agents engaged by the home credit business maintain their self-employed status. Processes and controls supporting the calculation of UK taxes and preparation of related returns are subject to annual internal audit review.

• The group is committed to building open and straightforward relationships with tax authorities, including having a regular and constructive dialogue with HMRC. This regularly includes advance discussion of transactions and keeping HMRC informed of key business developments, particularly those that could potentially impact on self-employed status of agents.

• An experienced in-house team, supported by tax-aware personnel in the businesses, deals with all of the group’s tax matters. Advice is sought from external advisors on material transactions and whenever the necessary expertise is not available in-house.

• The group continues to have advance discussions with HMRC in relation to the various business developments impacting on the self employed status of agents, including the contractual changes required as a result of the transition to FCA regulation and the various strategic changes that have taken place in the home credit business since 2013.

• With input and expertise from external advisors, and working alongside the in-house team, due diligence was undertaken on Moneybarn, as well as work on the tax aspects of the sale and purchase and on Moneybarn’s conversion to IFRS post acquisition.

• Work has commenced on improving and enhancing the various systems and processes in place to support Moneybarn’s tax returns and tax compliance obligations.

• Due diligence processes were completed to ensure that the group can comply with its obligations under the US Foreign Account Tax Compliance Act and similar provisions, and that Vanquis Bank can identify and report information about retail deposit account holders who are residents or citizens of particular territories.

Pension riskThe risk that there may be insufficient assets to meet the liabilities of the group’s defined benefit pension scheme.• The current economic environment results in increased volatility in equity markets and corporate bond yields.• Improving mortality rates in the UK.

Mitigation Progress in 2014• The defined benefit pension scheme was substantially closed to new members from

1 January 2003.

• Cash balance arrangements are now in place within the defined benefit pension scheme to reduce the exposure to improving mortality rates and market volatility.

• The pension investment strategy aims to maintain an appropriate balance of assets between equities and bonds.

• New employees since 2003 have been invited to join the group’s defined contribution pension schemes which carry no investment or mortality risk for the group.

• The defined benefit pension scheme was amended in 2012 so that accrued pension benefits are now linked to increases in the Consumer Price Index rather than future salary increases. This reduces the future liabilities of the scheme.

• The group’s pension asset for accounting purposes stands at £56.0m as at 31 December 2014 (2013: £29.2m).

• The company and trustees agreed to revise the investment strategy of the group’s defined benefit scheme by significantly reducing the holding in equities to 20%, reducing the holding in corporate bonds to 20% and increasing the holding in matching assets to 60% using leveraged gilts to increase the extent of the liability matching to close to 100%. This repositioning of investments has resulted in a de-risking of the scheme by substantially reducing the inflation and interest rate risk.

Risks continued

Governance continued

Provident Financial plc Annual Report and Financial Statements 201496

4.

Business risks (continued)

Principal risk Status How we are mitigating the riskAlignment to strategy

VAT status

Royal Mail is currently exempt from Value Added Tax (VAT) in a number of areas, in which this status is under threat:

• HMRC’s implementation of VAT legislation on mandated access services has been subject to a judicial review;

• The European Commission is reviewing VAT exemptions more generally, and postal services fall within the scope of that review;

• The EU has published a proposal for a ‘Vouchers Directive’; as currently drafted, this would alter the VAT treatment of postage stamps.

Although Royal Mail could benefit from greater recoverability of VAT on costs if the VAT exemption for USO and access services was removed, the cost to customers who cannot reclaim VAT would be increased, making us less competitive.

The judicial review found that HMRC has correctly implemented VAT legislation and the services should remain exempt from VAT. However, the plaintiff in the case has been granted leave to appeal the decision, and we may not have a definitive resolution until 2016.

The European Commission has published details of responses to its consultation about the future of VAT exemptions, but has not progressed the matter further. There has been no indication of the likely outcome or timescale of the exercise.

The proposed Vouchers Directive remains under discussion in Brussels.

• We will continue to support HMRC, as required, in defending its implementation of VAT legislation in respect of access services.

• We have established a direct link with the European Commission and continue to lobby more widely in relation to both the Vouchers Directive and the VAT status of postal services.

• We liaise with HM Treasury to seek to minimise the impact of the proposed Vouchers Directive.

Employment legislation

Changes to laws and regulations relating to employment (including the interpretation and enforcement of those laws and regulations) could, directly or indirectly, increase the Group’s labour costs, which, given the size of the Group’s workforce, could have an adverse effect on the Group.

The Employment Appeals Tribunal has ruled that, in excluding regular overtime from holiday pay calculations, the Government has misinterpreted the Working Time Directive since 1998.

Whilst this decision appears to have crystallised the risk of having to include overtime in the calculation of holiday pay, the position is still unclear as to how to calculate the appropriate payments and exactly who should receive such payments. The case law is still evolving in this area.

• We are closely monitoring developments in the case law in this area and are in discussions with our recognised unions as to how to deal with this issue. We hope to take a collaborative approach once the case law becomes clearer.

• Based on our estimates of the potential financial impact, we believe that we have made sufficient provision for any historic liabilities that may arise.

h

h

Royal Mail plc 34

5.

Provident Financial identifies tax as one of its key financial risks, highlighting how the group ensures it complies with tax obligations in the territories in which it operates. The disclosure includes specific mention of maintaining the self‑employed tax status for agents together with key actions taken over the year.

Royal Mail identifies the specific risk around the future uncertainty of its VAT exemption, the current status of negotiations, and the impact on the business if this were to be removed.


Tax numbers and performance


1.

22027.04 4 June 2015 6:19 AM Proof 4

Our performance 2014/15

FINANCIAL PERFORMANCERevenueWe have delivered a good set of financial results for the year ended 31 March 2015. Revenue increased by £31 million to £1,720 million. This increase principally reflects the allowed regulated price rise, partly offset by the previously announced special customer discount of £21 million.

Operating profitUnderlying operating profit was up £30 million to £664 million, as we tightly managed our cost base despite the expected increase in depreciation and other cost pressures, including bad debt. As planned, there was also a £17 million reduction in infrastructure renewals expenditure this year as we transition from this regulatory period to the next. Reported operating profit increased by £23 million, to £653 million.

Investment income and finance expenseThe underlying net finance expense of £222 million was £29 million lower than last year, primarily reflecting the impact of lower RPI inflation on the group’s index-linked debt. The indexation of the principal on our index-linked debt amounted to a net charge in the income statement of £47 million, compared with a net charge of £83 million last year. The group had approximately £3.1 billion of index-linked debt as at 31 March 2015 at an average real rate of 1.6 per cent. The lower RPI inflation charge contributed to the group’s average underlying interest rate of 4.0 per cent being lower than the rate of 4.6 per cent for 2013/14.

Reported investment income and finance expense of £317 million was significantly higher than the £92 million expense in 2013/14. This £225 million increase principally reflects a change in the fair value gains and losses on debt and derivative instruments, from a £129 million gain in 2013/14 to a £105 million loss in 2014/15. The £105 million fair value loss is largely due to losses on the regulatory swap portfolio, resulting from a significant decrease in medium-term sterling interest rates during the period, partly offset by a gain

from the unwinding of the derivatives hedging interest rates to 2015. The group uses these swaps to fix interest rates on a substantial proportion of its debt to better match the financing cash flows allowed by the regulator at each price review. The group fixed the majority of its non index-linked debt for the 2010–15 financial period, providing a net effective nominal interest rate of approximately 5 per cent.

Profit before taxUnderlying profit before tax was £447 million, £59 million higher than last year, due to the £30 million increase in underlying operating profit and the £29 million decrease in underlying net finance expense. This underlying measure adjusts for the impact of one-off items, principally from restructuring within the business, and other items such as fair value movements in respect of debt and derivative instruments. Reported profit before tax decreased by £202 million to £342 million, primarily due to the aforementioned fair value movements.

Taxation Consistent with our wider business objectives, we are committed to acting in a responsible manner in relation to our tax affairs.

Our tax policies and objectives, which are approved by the board on a regular basis, ensure that we:

• only engage in reasonable tax planning aligned with our commercial activities and we always comply with what we believe to be both the letter and the spirit of the law;

• do not engage in aggressive or abusive tax avoidance; and

• are committed to an open, transparent and professional relationship with HMRC based on mutual trust and collaborative working.

Under the regulatory framework the group operates within, the majority of any benefit from reduced tax payments will typically not be retained by the group but will pass to customers via reduced bills. For 2013/14, the group agreed, over and above the normal regulatory rules, to voluntarily share

with customers the one-off net cash benefit of £75 million due to the group, following the industry-wide agreement with HMRC in relation to the abolition of industrial buildings allowances in 2008.

In any given year, the group’s effective cash tax rate may fluctuate from the standard UK rate due to the available tax deductions on pension contributions and capital investment. These deductions are achieved as a result of utilising tax incentives, which have been explicitly put in place by successive governments precisely to encourage such investment. This reflects responsible corporate behaviour in relation to taxation.

The group’s effective cash tax rate may also fluctuate from the standard UK rate due to unrealised profits or losses in relation to treasury derivatives where the corresponding profits or losses are only taxed when realised. These movements are purely timing differences and are expected to continue going forward, following HMRC’s recent review of the relevant tax rules.

The group’s principal subsidiary, United Utilities Water Limited (UUW), operates solely in the UK and its customers are based here. All of the group’s profits are taxable in the UK (other than the group’s 35 per cent holding in Tallinn Water which generates around £6 million profit before tax with around £1 million Estonian tax paid).

In 2014/15, we paid corporation tax of £62 million, which represents an effective cash tax rate of 18 per cent, 3 per cent lower than the mainstream rate of corporation tax of 21 per cent. In 2013/14, we paid corporation tax of £64 million. For both years, the key reconciling items to the mainstream rate were allowable tax deductions on net capital investment and timing differences in relation to fair value movements on treasury derivatives. In 2013/14, the group also received an exceptional tax refund of £96 million in relation to prior years’ tax matters, covering a period of over 10 years in total.

UNITED UTILITIES GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2015Stock Code: UU.

unitedutilities.com

40

22027.04 4 June 2015 6:19 AM Proof 4

The current tax charge was £57 million in 2014/15, compared with a charge of £75 million in the previous year. In addition, there were current tax credits of £10 million in 2014/15 and £141 million in 2013/14, both following agreement with the UK tax authorities of prior years’ tax matters.

For 2014/15, the group recognised a deferred tax charge of £14 million, compared with a charge of £41 million in 2013/14. In addition, in 2014/15 the group recognised a deferred tax charge of £9 million relating to prior years’ tax matters, compared to a deferred tax credit of £13 million in 2013/14. In 2013/14, the group also recognised a deferred tax credit of £157 million relating to the 3 per cent staged reduction in the mainstream rate of corporation tax, substantively enacted on 2 July 2013, to reduce the rate to 20 per cent by 2015/16.

The total tax charge, excluding one-off charges and credits, of £71 million for 2014/15 represents a rate of 21 per cent, similar to the rate in 2013/14.

In addition to corporation tax, the group pays and bears further annual economic contributions, typically of around £140 million per annum, in the form of business rates, employer’s national

insurance contributions, environmental taxes and other regulatory service fees such as water abstraction charges.

Profit after taxUnderlying profit after tax of £354 million was £49 million higher than for 2013/14, reflecting an increase in underlying profit before tax partly offset by an increase in underlying tax charge due on higher profits. Reported profit after tax was £271 million, compared with £739 million for 2013/14, impacted by the £234 million movement in fair value on debt and derivative instruments and the £266 million net increase in tax between the two periods.

Earnings per shareUnderlying earnings per share increased from 44.7 pence to 51.9 pence. This underlying measure is derived from underlying profit after tax. This includes the adjustments for the deferred tax credits in 2013/14 associated with the reductions in the corporation tax rate and an adjustment for the tax credit arising from agreement of prior years’ tax matters. Basic earnings per share decreased from 108.3 pence to 39.8 pence, for the same reasons that reduced profit after tax.

Dividend per shareThe board has proposed a final dividend of 25.14 pence per ordinary share in respect of the year ended 31 March 2015. Taken together with the interim dividend of 12.56 pence per ordinary share, paid in February, this produces a total dividend per ordinary share for 2014/15 of 37.70 pence. This is an increase of 4.6 per cent, compared with the dividend relating to last year, in line with group’s dividend policy of targeting a growth rate of RPI+2 per cent per annum through to 2015. The inflationary increase of 2.6 per cent is based on the RPI element included within the allowed regulated price increase for the 2014/15 financial year (i.e. the movement in RPI between November 2012 and November 2013).

The final dividend is expected to be paid on 3 August 2015 to shareholders on the register at the close of business on 26 June 2015. The ex-dividend date is 25 June 2015.

Cash flow Net cash generated from continuing operating activities for the year ended 31 March 2015 was £707 million, compared with £797 million in the previous year. This reduction mainly reflects the receipt of the aforementioned exceptional tax refund in 2013/14. The group’s net capital expenditure was £709 million, principally in the regulated water and wastewater investment programmes. This excludes infrastructure renewals expenditure which is treated as an operating cost under IFRS.

Net debt including derivatives at 31 March 2015 was £5,924 million, compared with £5,516 million at 31 March 2014. This increase reflects expenditure on the regulatory capital expenditure programmes and payments of dividends, interest and tax, alongside fair value losses on the group’s debt and derivative instruments, partly offset by operating cash flows.

Summary of net debt movement7,000

6,500

6,000

5,500

5,000

4,500

Net d

ebt a

t 31

/03/

14

Net c

apex

Divi

dend

s

Inte

rest

&

tax

Non-

cash

m

ovem

ents

& ot

her

Oper

atin

gca

sh fl

ow

Net d

ebt a

t31

/03/

15

£m5,515.9

709.0

249.4

235.2156.2 941.7

5,924.0


unitedutilities.com

41

SHA

REH

OLD

ER IN

FOR

MAT

ION

FIN

AN

CIA

L ST

ATEM

ENTS

GO

VER

NA

NCE

STR

ATEG

IC R

EPO

RT

22027.04 4 June 2015 6:19 AM Proof 4

The current tax charge was £57 million in 2014/15, compared with a charge of £75 million in the previous year. In addition, there were current tax credits of £10 million in 2014/15 and £141 million in 2013/14, both following agreement with the UK tax authorities of prior years’ tax matters.

For 2014/15, the group recognised a deferred tax charge of £14 million, compared with a charge of £41 million in 2013/14. In addition, in 2014/15 the group recognised a deferred tax charge of £9 million relating to prior years’ tax matters, compared to a deferred tax credit of £13 million in 2013/14. In 2013/14, the group also recognised a deferred tax credit of £157 million relating to the 3 per cent staged reduction in the mainstream rate of corporation tax, substantively enacted on 2 July 2013, to reduce the rate to 20 per cent by 2015/16.

The total tax charge, excluding one-off charges and credits, of £71 million for 2014/15 represents a rate of 21 per cent, similar to the rate in 2013/14.

In addition to corporation tax, the group pays and bears further annual economic contributions, typically of around £140 million per annum, in the form of business rates, employer’s national

insurance contributions, environmental taxes and other regulatory service fees such as water abstraction charges.

Profit after taxUnderlying profit after tax of £354 million was £49 million higher than for 2013/14, reflecting an increase in underlying profit before tax partly offset by an increase in underlying tax charge due on higher profits. Reported profit after tax was £271 million, compared with £739 million for 2013/14, impacted by the £234 million movement in fair value on debt and derivative instruments and the £266 million net increase in tax between the two periods.

Earnings per shareUnderlying earnings per share increased from 44.7 pence to 51.9 pence. This underlying measure is derived from underlying profit after tax. This includes the adjustments for the deferred tax credits in 2013/14 associated with the reductions in the corporation tax rate and an adjustment for the tax credit arising from agreement of prior years’ tax matters. Basic earnings per share decreased from 108.3 pence to 39.8 pence, for the same reasons that reduced profit after tax.

Dividend per shareThe board has proposed a final dividend of 25.14 pence per ordinary share in respect of the year ended 31 March 2015. Taken together with the interim dividend of 12.56 pence per ordinary share, paid in February, this produces a total dividend per ordinary share for 2014/15 of 37.70 pence. This is an increase of 4.6 per cent, compared with the dividend relating to last year, in line with group’s dividend policy of targeting a growth rate of RPI+2 per cent per annum through to 2015. The inflationary increase of 2.6 per cent is based on the RPI element included within the allowed regulated price increase for the 2014/15 financial year (i.e. the movement in RPI between November 2012 and November 2013).

The final dividend is expected to be paid on 3 August 2015 to shareholders on the register at the close of business on 26 June 2015. The ex-dividend date is 25 June 2015.

Cash flow Net cash generated from continuing operating activities for the year ended 31 March 2015 was £707 million, compared with £797 million in the previous year. This reduction mainly reflects the receipt of the aforementioned exceptional tax refund in 2013/14. The group’s net capital expenditure was £709 million, principally in the regulated water and wastewater investment programmes. This excludes infrastructure renewals expenditure which is treated as an operating cost under IFRS.

Net debt including derivatives at 31 March 2015 was £5,924 million, compared with £5,516 million at 31 March 2014. This increase reflects expenditure on the regulatory capital expenditure programmes and payments of dividends, interest and tax, alongside fair value losses on the group’s debt and derivative instruments, partly offset by operating cash flows.

Summary of net debt movement7,000

6,500

6,000

5,500

5,000

4,500

Net d

ebt a

t 31

/03/

14

Net c

apex

Divi

dend

s

Inte

rest

&

tax

Non-

cash

m

ovem

ents

& ot

her

Oper

atin

gca

sh fl

ow

Net d

ebt a

t31

/03/

15

£m5,515.9

709.0

249.4

235.2156.2 941.7

5,924.0


unitedutilities.com

41

SHA

REH

OLD

ER IN

FOR

MAT

ION

FIN

AN

CIA

L ST

ATEM

ENTS

GO

VER

NA

NCE

STR

ATEG

IC R

EPO

RT

2.

87 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Taxation

Our tax contribution

Our approach to tax

Tax expense

2015

Prior year adjustments

20

19.9% 21.7% 22.5%

Tax losses

PC_FRONT.indb 87 5/15/2015 1:48:03 AM

United Utilities provides details of the cash tax rate in the current and prior year, with reasons why the rate differs from the applicable statutory rate of corporation tax. Helpful narrative is also provided around the current and deferred tax charges.

BT provides an analysis of its underlying effective tax rate, excluding the impact of specific items. It discusses the main differences between this and the UK statutory rate, and comments on the impact that the falling UK statutory rate of corporation tax has had on its own effective tax rate.

19December 2015

Source: 1. United Utilities Group plc, Annual Report and Financial Statements 2015 – pages 40 & 412. BT Group plc, Annual Report 2015 – page 873. SSE plc, Annual Report 2015 – page 140

SSE plc Annual Report 2015140

Financial Statements

9. Taxation 9. Taxation continuedcontinuedIn October 2014, SSE became the first FTSE 100 group to be accredited with the Fair Tax Mark. As a consequence, these financial statements include a number of areas of enhanced disclosure which have been provided in order to develop stakeholder understanding of the tax the Group pays. The table below reconciles the tax which would be expected to be paid on SSE’s reported profit before tax to the reported current tax charge and the reported total taxation charge along with additional commentary on the main reconciling items provided beneath the table:

2015

£m2015

%

2014 (Restated

note 2.1(ii))£m

2014%

Profit before tax 735.2 592.5Less: share of results of associates and jointly controlled entities (163.6) (185.6)

Profit before tax 571.6 406.9

Tax on profit on ordinary activities at standard UK corporation tax rate of 21% (2014 – 23%) 120.0 21.0 93.6 23.0

Tax effect of:Depreciation in excess of capital allowances 86.0 15.1 67.4 16.6Increase in restructuring and settlement provisions 2.6 0.5 34.4 8.3Non-taxable gain on sale of shares (13.8) (2.4) – –Fair value movements on derivatives 23.6 4.1 48.0 11.8Pension movements (11.0) (1.9) (11.6) (2.9)Relief for capitalised interest and revenue costs (22.3) (3.9) (25.4) (6.2)Hybrid capital coupon payments (25.5) (4.5) (27.8) (6.8)Corporation tax relief on PRT paid (4.5) (0.8) (5.5) (1.4)Expenses not deductible for tax purposes 7.7 1.3 15.6 3.8Impact of higher current tax rates on E&P profits 42.1 7.4 35.2 8.7Impact of foreign tax rates 1.4 0.2 (0.6) (0.1)Adjustments to tax charge in respect of previous years (29.8) (5.2) (21.4) (5.2)

Reported current tax charge and effective rate 176.5 30.9 201.9 49.6Depreciation in excess of capital allowances (68.5) (12.0) (48.5) (11.9)Increase in restructuring and settlement provisions (2.6) (0.5) (34.4) (8.5)Fair value movements on derivatives (23.6) (4.1) (48.0) (11.8)Pension movements 11.0 1.9 11.6 3.0Relief for capitalised interest and revenue costs 22.3 3.9 25.4 6.2Impact of higher deferred tax rates on E&P profits (34.8) (6.1) 45.6 11.2Impact of foreign tax rates (4.2) (0.7) (2.5) (0.6)Adjustments to tax charge in respect of previous years 6.5 1.1 27.8 6.8Change in rate of UK corporation tax (15.6) (2.7) (59.8) (14.7)Other items 3.8 0.6 27.4 6.7

Reported deferred tax credit and effective rate (105.7) (18.6) (55.4) (13.6)

Group tax charge and effective rate 70.8 12.3 146.5 36.0

The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 21% for the year to 31 March 2015 (2014 – 23%). The Group’s Gas Production business is taxed at a UK corporation tax rate of 30% plus a supplementary charge of 29% (combined 62%). In addition, profits from the Sean gas field are subject to petroleum revenue tax (“PRT”) at 50% which is deductible against corporation tax, giving an overall effective rate for the field of 79.5%. Profits earned by the Group in the Republic of Ireland are taxable at either 12.5% or 25%, depending upon the nature of the income.

Capital allowances are tax reliefs provided in law for the expenditure the Group makes on property, plant and equipment. The rates are determined by Parliament annually, and spread the tax relief due over a number of years. This contrasts with the accounting treatment for such spending, where the expenditure on property, plant and equipment is treated as an asset with the cost being depreciated over the useful life of the asset, or impaired if the value of such assets is considered to have reduced materially. Adjustments to the deferred tax charge in respect of previous years inculdes an uplift in the provision required in relation to the acquired Sean Gas field.

The different accounting treatment of property, plant and equipment for tax and accounting purposes means that the taxable income of the Group is not the same as the profit reported in the financial statements. During both the year to 31 March 2015 and the previous year, the substantial impairments undertaken in relation to certain of the Group’s property, plant and equipment, which are explained at note 6, meant that the charge to profit for the year significantly exceeded the amount of capital allowances due to the Group.

Short term temporary differences arise on items such as provisions for restructuring costs and onerous contracts, and retirement benefit obligations, because the treatment of such items is different for tax and accounting purposes. These differences usually reverse in the year following that in which they arise, as is reflected in the deferred tax charge in these financial statements. Where interest charges or other costs are capitalised in the financial statements, tax relief is either given as the charges are incurred or when the costs taken to the income statement.

As explained at Accompanying Information A1.3 and at note 32 to the accounts, the Group measures its operating and financing derivatives at fair value under IAS 39. Due to the financial statements of its subsidiaries being prepared under UK GAAP and following the application of the UK tax “disregard regulations”, the re-measurement movements have no current tax effect impacting only the deferred tax position.

Notes on the financial statements Notes on the financial statements continuedcontinuedfor the year ended 31 March 2015

3.

SSE provides a detailed reconciliation of its effective tax rate to the statutory rate of corporation tax in the UK, with items split by current and deferred tax and represented by absolute amounts and percentages. It removes the impact of associates and joint ventures, which can have a distorting impact on the reconciliation, and also provides further commentary around some of the items influencing the tax rate in the year.


Total Tax Contribution and the wider impact of tax


2.

The Rank Group Plc: Annual Report and Financial Statements 2014 9

On 6 May 2014, I became non-executive chairman and have been working alongside Henry to ensure a smooth transition of executive responsibilities.

DividendThe board is pleased to recommend a final dividend of 3.15 pence per share be paid on 22 October 2014 to shareholders on the register at 12 September 2014.

Regulatory reform1

Rank has been lobbying for regulatory modernisation within gaming for a number of years. Following the successful campaign to cut bingo duty, Rank’s current objectives reflect restrictions on our ability to meet customer demand for casino gaming and are:

• An increased provision of slot machines in casinos (Great Britain’s casinos currently have less than 2% of the machines in Great Britain); and

• The right for local authorities to elect whether to license casinos (the majority of local authorities in Great Britain do not currently enjoy this right).

While achievement of these objectives remains uncertain, progress was made in 2013/14 with increases in maximum stakes (from £2 to £5) and prizes (maximum of £10,000) for Category B1 slot machines in casinos and an increase in the maximum prize (from £70 to £100) for Category C slot machines in the Group’s bingo venues.

TaxationThe 2014 Budget statement contained two major changes to the taxation of the Group’s activities:

• A reduction in bingo duty from 20% to 10% to take effect from 30 June 2014; and

• The application of remote gaming duty (‘RGD’), at 15%, to all online gaming involving consumer transactions in the UK (regardless of where the operator is based) to take effect from 1 December 2014.

As a consequence of the reduction in bingo duty Rank has committed to the construction of three new bingo venues, the re-starting of its venues refurbishment programme and providing better value for customers in terms of game prices and prize funds.

Rank has been working hard on assessing the full impact of RGD and developing ways to reduce any negative impact on shareholder value, for example through the renegotiation of key digital contracts and reviewing the effectiveness of digital marketing campaigns. The Group anticipates the majority of the duty cost will impact digital profitability.

Listing RulesOn 16 May 2014, new Listing Rules came into force for all premium listed companies. The Financial Conduct Authority (“FCA”) confirmed that the

For more information see pages: 48 Board of directors51 Corporate governance

minimum free float requirement remains at 25%, however they stated that they will take into account certain factors when making any decision to modify the 25% requirement. Rank has therefore made a formal submission to the FCA requesting it to modify LR 6.1.19 R so that Rank can continue to be a premium listed company with a slightly lower free float percentage than 25%.

Current trading and outlookSince the beginning of July performance has been in line with management’s expectations and ahead of last year. While such a short trading period can be distorted by external factors, we are pleased with the underlying trends.

Rank remains in a strong financial position, possesses market-leading brands and has a clear strategy for long-term growth.

Ian Burke, Chairman13 August 2014

1 Total advisory service fees for engaging with Government, Parliament and the media in the period were £0.1m (2012/13: £0.1m).

Rank outlines the changes in tax legislation that have impacted the business in the year. It has committed to invest the tax savings into more venues and better value for customers, demonstrating its broader economic contribution.

Standard Life shows its Total Tax Contribution in a graphical format, and provides commentary on the figures, distinguishing between the taxes borne by the company and collected on behalf of governments. The commentary includes reasons for the change compared to last year, and highlights the contribution beyond corporation tax.

1.

21December 2015

Source: 1. The Rank Group plc, Annual Report and Financial Statements 2014 – page 92. Standard Life plc, Annual report and accounts 2014 – page 103. Barratt Developments plc, Sustainability Report 2014 – pages 2 & 3

The infographic below provides an illustration of our socio-economic footprint for the financial year 2014.

BaRRaTT DevelopmenTs plCSuStainability RepoRt 2014

OUR SOCIO-ECONOMIC FOOTPRINT 02 03

lthough we regularly assess the economic benefits of our individual developments

as part of the planning process, this is only the second year we have carried out this type of analysis for the whole of our operations. This year, we are also presenting the social and environmental impacts of our operations, alongside the economic

contributions. We believe this helps demonstrate the contribution our business makes to the UK’s economy and the communities in which we operate.

The analysis estimates that the economic output and jobs supported by our construction activity is very significant. Barratt

employed 5,755 people last year, but once subcontractors, suppliers and wider spin-off employment is taken into account, we supported 52,000 jobs. This is an average of 3.5 jobs for every house we build. We estimate our business helped generate at least £490m of tax last year, supporting public finances.

aour socio-economic

footprint

The economic assessment was carried out on our behalf by independent consultants, Nathaniel Lichfield & Partners (NLP). NLP analysed the economic impacts through the whole delivery chain for new housing, drawing on Barratt datasets, published research and national statistics.

3.

Barratt Developments quantifies the amount of tax generated through its operations during the year, Together with employment, housing, social facilities and other economic indicators, this infographic provides a powerful picture of the company’s contribution to the UK.


2. Multinational Companies (MNCs)

23December 2015

The majority of FTSE100 companies have operations overseas, with many maintaining a strong UK presence. Some have addressed increased interest from CSOs and the media with greater transparency around their tax affairs.

Ranging from paragraphs in the front‑end of the annual report to standalone tax reports, MNCs are providing more information about their approach to tax and how they identify and respond to tax risks.

Tax performance numbers are being enhanced with narrative around the reconciling items or some forecasting effective and cash tax rates. Some use a weighted average statutory rate to reflect the geographic mix of tax bases.

Even companies which are outside the mandatory reporting regimes offer insight into the geographic makeup of the taxes they pay – often including a Total Tax Contribution disclosure. Some give commentary and opinion around voluntary transparency as well as global tax policy initiatives. Those with operations in the developing world can link tax with economic impacts such as jobs and capital investment.


2. MNCs


Tax Strategy 1. Schroders will comply with its tax obligations worldwide and will only engage in reasonable tax planning that is aligned

with commercial and economic activity. We will follow the terms of the UK’s Double Taxation Treaties and relevant OECD guidelines for international tax matters.

2. We will maintain an open and transparent relationship with the tax authorities in the key jurisdictions in which we operate. In the UK, Schroders was one of the first businesses to enter into a framework agreement with HMRC. Under this framework, we agreed to keep HMRC informed of business activities, results and key developments as they arise and proactively disclose issues, risks and uncertain tax positions, and we continue to be committed to conducting our tax affairs in this way.

3. We will utilise tax incentives or opportunities for obtaining tax efficiencies where these:

– do not carry significant reputational risk or significant risk of damaging our relationship with the fiscal authorities in the key jurisdictions in which we operate,

– are aligned with the intended policy objectives of the governments which introduced the incentives,

– do not have a material adverse impact on “above the line” results, and

– are aligned with business or operational objectives.

4. We will manage tax risk in such a way as to ensure that key risk areas are monitored and material risks minimized.

5. We will adhere to the CBI’s seven tax principles for UK business.1

6. We will comply with the requirements of the UK’s Code of Practice on Taxation for UK Banks.

1See http://www.cbi.org.uk/media-centre/news-articles/2013/05/seven-tax-principles-for-uk-business-proposed-by-cbi/.

1.

Total taxes paid

$1,563m Corporate Income Tax

$245m Employer Payroll Taxes

$183m Withholding Taxes

$180m UK Bank Levy

$90m Irrecoverable VAT

$131m Other Taxes

Our approach to tax The Group’s approach to tax is governed by our tax strategy which has been approved by the Board. Under our tax strategy, we manage our tax affairs in alignment with our commercial strategy, having regard to building long term shareholder value and to maintaining our reputation as a responsible taxpayer with tax authorities and regulators. Our tax team ensures that our tax policy framework is fit for purpose and a robust review and approval process operates.

Our tax policy We have no tolerance for breaches of regulatory, legal and tax compliance requirements in any jurisdiction. Standard Chartered complies with tax laws and pays all taxes legally due in all jurisdictions in which we operate. We operate in accordance with our values and our Brand Promise Here for good. In the UK, Standard Chartered has re-adopted The Code of Practice on Taxation for Banks, which commits us to follow the spirit as well as the letter of the law in relation to tax planning. We manage our relationships with tax authorities and regulators in a transparent, professional and constructive manner. We routinely seek feedback from Her Majesty’s Revenue and Customs on our relationship with them and have shared our tax policy with them. Standard Chartered contributes to the development of sustainable tax policy and legislation, typically through direct engagement with tax authorities, public consultation processes or in our role as a member of an industry group. We support tax authorities in developing their capabilities. Across our markets, we operate as one bank. We are a global business and have substantial commercial operations in both high and low tax jurisdictions. Transactions between group entities are priced on an arm’s length basis, reflecting the economic reality of the transaction in accordance with international standards and local government law. We do not artificially divert profits to low tax jurisdictions. Tax is considered as part of relevant business decisions and we only engage in tax planning that supports a genuine business purpose and commercial activity. We do not enter into transactions whose sole purpose is to minimise or reduce tax cost. Similarly, we do not promote tax avoidance products to our customers.

We are committed to combating financial crime, including money laundering arising from tax evasion. In support of this objective, we continue to review, and where appropriate enhance, many aspects of our existing approach to anti-money laundering compliance.

Contributions to tax revenues Paying taxes is one of the many ways we contribute to sustainable growth in local economies. Standard Chartered paid corporate income taxes of $1,563 million in 2013. In addition, we paid other taxes of $829 million in 2013. This includes the UK bank levy, $180 million, which is calculated on our global balance sheet, although the majority relates to liabilities owed to counterparties in our major markets outside the UK.

Collection of taxes As well as the taxes borne and paid by Standard Chartered, we also play an important role on behalf of governments as collector of taxes in relation to payments made to customers, clients and employees. In 2013, we collected $1,433 million of employment and other taxes on behalf of governments.

$2.4bn

2.

Schroders covers its approach to tax, which includes the attitude towards tax planning and utilising available tax incentives. The company also discusses its relationship with tax authorities and confirms that it follows the CBI’s tax principles and the UK’S Code of Practice on Taxation for UK Banks.

Standard Chartered sets out how its international business affects its tax planning – including the group’s attitude towards transfer pricing and use of low tax jurisdictions – which reflects commercial activity. It also states that it will not promote tax avoidance products to its customers.

Our approach to tax

During 2013 we set out clear Tax Principles that govern our approach to tax. Any tax planning must:

support genuine commercial activity; comply with generally accepted custom and practice, in addition to the law and the UK Code of Practice on

Taxation for Banks; be of a type that the tax authorities would expect; only take place with customers and clients sophisticated enough to assess its risks; and be consistent with, and seen to be consistent with, our Purpose and Values.

Our business Tax influences decisions about how we run and organise our business and about where we base our operations. Making these decisions is an integral part of running a commercial organisation. When tax is a factor in deciding where or how we do business we ensure that it is fully consistent with our Tax Principles and that the operations are genuinely carried out in those locations in which they are taxed. Arrangements that artificially transfer profits into a low tax jurisdiction would not be compliant with the Tax Principles. We are sometimes required to make decisions that affect our tax position but have no other impact on our business – for example, choosing to make claims or elections under tax law, or choosing between different forms of legal entity. Such decisions must comply with all our Tax Principles. Our clients Barclays does not provide standalone tax advice to clients and any comments we make to clients about tax are only made in the context of our business with clients. Our Tax Principles make it very clear that all tax planning must support genuine commercial activity. For example:

some financing arrangements promoted by third parties enable investors to benefit from government tax incentives. In some cases these arrangements may be structured to artificially increase the tax benefit so that it is disproportionate to the size of the investment and the result would not be one that the relevant tax authority would expect. In these circumstances we would not agree to provide funding to the investor as the transaction would not comply with our Tax Principles; and

if the director of a company who also owns shares in that company requests a personal loan, we need to

understand if the loan is connected with their role as director. This is because the loan could enable the director to receive cash instead of dividends being paid by the company, thereby avoiding a tax charge that would otherwise have arisen on the dividend income. If we are dissatisfied with the purpose of the loan, or the arrangements between the director and the company concerning the loan are not transparent, we will not agree to provide such a loan in these circumstances as this would not comply with our Tax Principles.

Activities and taxes in offshore financial centres Barclays has business operations in a number of jurisdictions which have low tax rates. For example, we operate full-service retail and corporate banking businesses in both Mauritius and the Seychelles. In both cases we are one of the leading banks in the country, having operated there for more than 50 years. Closer to the UK, we also have operations in offshore financial centres which are based principally in the Isle of Man, Jersey and Guernsey, where our wealth and investment management operations are a long-term major local employer. We have also historically incorporated companies under the laws of certain low tax jurisdictions because the local company law makes it easy and cost-effective to set up and manage companies. Virtually all of the profits generated in these companies are subject to corporation tax at the UK corporate tax rate. The total amount of profit not taxed in the UK, in respect of all our entities incorporated in low tax jurisdictions where we do not have a substantial business, was less than £2m in 2014 (less than 0.09% of the Group’s profit before tax) (2013: £3m). We continue to have an objective of reducing the number of entities that we operate in low tax jurisdictions, but recognise that many such companies were established for a genuine commercial purpose that is consistent with our Tax Principles. The total number of companies that are incorporated under the laws of low tax jurisdictions has been reduced to 190 (from 205 in 2013).

3.

Barclays provides its principles for the group’s tax planning, linking tax to the wider business and explaining the attitude towards low tax jurisdictions. The approach to tax also covers its clients, giving two examples of situations which would not comply with the Tax Principles.

25December 2015

Source: 1. Schroders plc, Tax Strategy2. Standard Chartered plc, Country by Country Disclosure – page 13. Barclays plc, Country Snapshot – page 74. Associated British Foods plc, Tax Principles5. Pearson plc, Taxation Principles

Tax Principles:

Our businesses pay a significant amount of tax to local and national governments including corporate taxes on profits, social taxes on employment, taxes on property, customs and excise duty on purchases, withholding taxes and environmental taxes. Our businesses also collect sales taxes charged to our customers and taxes paid by our employees. These are all paid in full and on time in the territories in which we operate.

The principles governing the management of our tax affairs are fully aligned with the group’s wider commercial, reputational and business practices and are consistent with our commitment to corporate responsibility. They consist of the following:

• complying with applicable tax laws, rules, regulations and disclosure requirements;

• paying the right amount of tax based on the tax laws, rules and regulations of the territories in which we operate;

• interpreting tax law using relevant guidance and discussing such interpretation with tax authorities where appropriate;

• managing our tax affairs so as to enhance shareholder value, whilst ensuring the wider reputation of the group is not compromised;

• only undertaking tax planning which is aligned with a genuine commercial rationale;

• seeking to have constructive and transparent working relationships with tax authorities based on mutual respect and trust; and

• proactively managing and monitoring compliance with the above tax principles.

The board-adopted tax policy, and compliance with it, is regularly reviewed. The underlying tax principles are actively monitored by the tax department, internal audit, our external advisors and the board. We are completely transparent in all of our dealings and disclosures with all tax authorities.

4.

Pearson: Taxation Principles

The principles that guide us in managing taxes at Pearson are:

1. To comply with all relevant tax laws, regulations and tax reporting requirements in all jurisdictions in which we operate, including claiming available tax incentives and exemptions. If we discover instances of non-compliance we seek to resolve them with the appropriate tax authority.

2. To manage our tax affairs in accordance with Pearson’s Code of Conduct.

3. To pay an appropriate amount of tax according to where value is created within the normal course of commercial activity. Our approach to transfer pricing follows the “arms-length” principle as outlined in the OECD Transfer Pricing Guidelines i.e. cross border transactions take place as if the parties were unconnected.

4. To undertake transactions aligned with business activities and business objectives.

5. To achieve a more favourable tax outcome where a choice exists between different options. In considering and deciding between different options, the factors we consider include commercial, strategic and reputational impact.

6. To have an open working relationship with tax authorities. To discuss and consult on our interpretation of the law with tax authorities such as HMRC as issues arise. Where possible, we will use tax clearances to obtain agreement in advance from tax authorities prior to undertaking transactions.

7. To agree the tax strategy with the Chief Financial Officer and the Audit Committee annually.

These principles guide us in delivering our two overriding objectives for tax management:

1. to protect value for our shareholders, in line with our broader fiduciary duties; 2. to comply fully with all relevant legal and regulatory obligations, in line with our

stakeholders’ expectations.

5.

Associated British Foods uses a single webpage to set out its high‑level tax principles. It refers to the different groups which monitor compliance with the policy including the board and the internal audit function.

Pearson sets out its tax principles, highlighting that commercial, strategic and reputational impacts are all considered when approaching tax matters. It states that its tax affairs are aligned to the group Code of Conduct.



2. MNCs

126 I Barclays PLC Annual Report 2014 barclays.com/annualreport

Risk managementRisk review

setting of policies and controls; monitors the Group’s liquidity and interest rate maturity mismatch; monitors usage of regulatory and economic capital; and has oversight of the management of the Group’s capital plan.

The Head of Compliance chairs the Conduct and Reputational Risk Committee (CRRC) which assesses quality of the application of the Reputation and Conduct Risk Control Frameworks. It also recommends risk appetite, sets policies to ensure consistent adherence to that appetite, and reviews known and emerging reputational and conduct related risks to consider if action is required.

The Enterprise Wide Risk Management Committee (EWRMC) was established by, and derives its authority from, the CRO. It supports the CRO in the provision of oversight and challenge of the systems and controls in respect of risk management. EWRMC membership includes the CRO, CEO, Group Finance Director, Group General Counsel, and Head of Compliance.

Risk governance and assigning responsibilitiesResponsibility for risk management resides at all levels of the Group, from the Board and the Executive Committee down through the organisation to each business manager and risk specialist. These responsibilities are distributed so that risk/return decisions are: taken at the most appropriate level; as close as possible to the business and, subject to robust and effective review and challenge. The responsibilities for effective review and challenge reside at all levels.

The ERMF was introduced as part of the Transform programme and sets out the activities, tools, techniques and organisational arrangements to ensure that all material risks are identified and understood, and that appropriate responses are in place to protect the Group and prevent detriment to its customers, colleagues or

community, enabling the Group to meets its goals, and enhance its ability to respond to new opportunities.

It covers those risks incurred by the Group that are foreseeable, continuous and material enough to merit establishing specific Group-wide control frameworks. These are known as Key Risks. See Principal Risks on page 141 for more information.

The ERMF is intended to be widely read with the aim of articulating a clear, consistent, comprehensive and effective approach for the management of all risks in the Group and creating the proper context for setting standards and establishing the right practices throughout the Group. The ERMF sets out a philosophy and approach that is applicable to the whole bank, all colleagues and to all types of risk and defines the roles and responsibilities of all employees with respect to risk management, including the CRO and the CEO. It also sets out specific requirements for key individuals, including the CRO and CEO, and the overall governance framework that will oversee its effective operation. See Risk Culture in Barclays PLC Pillar 3 Report for more information.

The EMRF supports risk management and control by ensuring that there is a:

Sustainable and consistent implementation of the three lines of defence across all businesses and functions;

Framework for the management of Principal Risks;

Consistent application of Barclays’ risk appetite across all Principal Risks; and

Clear and simple policy hierarchy.

Credit RiskMarket Risk

Funding Risk Operational Risk Conduct RiskReputation Risk

Board Financial Risk Committee Board Conduct Operational and Reputational Risk Committee and Board Audit Committee

Financial Risk Committee

■ monitors risk profile with respect to risk appetite

■ debates and agrees actions on the financial risk profile and risk strategy across the Group ■ considers issues

escalated by Risk Type Heads and Business Risk Directors

TreasuryCommittee

■ sets policy/controls for liquidity, maturity transformation and structural interest rate exposure

■ monitors the Group’s liquidity and interest rate maturity mismatch

■ monitors usage of regulatory and economic capital

■ oversees the management of the Group’s capital plan

Tax RiskCommittee

■ monitors the tax risk profile in respect of risk appetite

■ assesses the quality of the application of the control framework

■ considers issues that arise as a result of developing trends

Operational Risk and Control Committee

■ reviews, challenges and recommends appetite for Operational Risk

■ monitors risk profile

– against risk appetite

– for relevant Key Risk Types

■ reviews the Group’s aggregate Operational Risk profile

■ reviews and challenges presentations on individual Key Risk Types

Conduct and Reputational Risk Committee

■ assesses quality of the application of the Reputation and Conduct Risk Control Frameworks ■ recommends risk appetite and sets policies to ensure consistent adherence to that appetite

■ reviews known and emerging reputational and conduct related risks to consider if action is required

■ proactively considers reputational and conduct related issues that arise as a result of business activity and from external forces

Enterprise Wide Risk Management Committee

■ considers the key Group-wide risk themes which may have a significant impact on the Group

■ considers the overall risk profile performance against risk appetite

■ considers the design and completeness of the Enterprise Wide Risk Management Framework

■ also reports into the Board Enterprise Wide Risk Committee

Reporting and control

Annual General Meeting and annual re-election of directorsAs required by the UK Corporate Governance Code, the Notice of the 2014 Annual General Meeting was sent to shareholders at least 20 working days before the meeting. A poll vote was taken on each of the resolutions put before shareholders. All directors serving at the time of the 2014 Annual General Meeting, attended and the Chairman of the Board and the Chairmen of each of the Committees were available to answer shareholders’ questions.

Voting at the upcoming 2015 Annual General Meeting will be by way of poll. The results of the voting at the Annual General Meeting will be announced and details of the votes will be available to view on the Group’s website at www.burberryplc.com as soon as possible after the meeting.

It is the intention that all directors, including the Chairmen of the Audit, Remuneration and Nomination Committees, will attend the 2015 Annual General Meeting and will be available to answer shareholders’ questions.

All directors have, since the 2011 Annual General Meeting, offered themselves for annual re-election in accordance with the UK Corporate Governance Code. At the 2015 Annual General Meeting, all of the directors will again retire and all will offer themselves for re-election or, in the case of the newly appointed directors, for election.

The biographical details of the current directors can be found on pages 62 and 63 of this Annual Report. The Chairman confirms that, following the external evaluation conducted during the year and the review of individual director roles and performance led by the Chairman, the performance of each of the directors standing for election continues to be effective and demonstrates commitment to their roles, including commitment of time for Board and Committee meetings and any other duties. Accordingly, the Board recommends that shareholders approve the resolutions to be proposed at the 2015 Annual General Meeting relating to the re-election or election of the directors.

The terms and conditions of appointment of the directors, including the expected time commitment, are available for inspection at the Company’s registered office.

Other governance disclosuresTax strategyThe Group is committed to complying with global tax regulations in a responsible manner with due regard to governments and shareholders, and to engage in open and constructive relationships with tax authorities in the territories in which it operates. The Group’s tax planning is consistent with this responsible approach, and it will not enter into arrangements simply to achieve a tax advantage. The Group tax strategy is implemented through the Group’s tax policy which directs and aligns the activities of the various functions within the Group in order to achieve the strategy’s objectives.

Tax governance frameworkThe Chief Financial Officer is responsible for the Group’s tax policy which is implemented with the assistance of the finance leadership team. This is reviewed on an ongoing basis as part of the regular financial planning cycle. In addition, the Group’s tax status is reported regularly to the Group Risk and Audit Committees. The Audit Committee is responsible for monitoring all significant tax matters including the Group’s tax policy. Audit Committee meetings are regularly attended by a number of Group officers and employees including the Chief Financial Officer, the Senior Vice President – Group Tax and the Chief Corporate Affairs Officer & General Counsel, who oversees all corporate responsibility matters.

Share capitalFurther information about the Company’s share capital, including substantial shareholdings, can be found in the Directors’ Report on pages 104 to 107.

80

Board and Governance – Corporate Governance Report

with the transitional guidance issued by the FRC. KPMG was first appointed as sole external auditor to AstraZeneca in 2001 following a competitive tender. The new EU audit reform framework and the Competition & Markets Authority’s Order do not impact the Audit Committee’s decision to put the audit out to tender by 2018.

Non-audit servicesThe Audit Committee maintains a policy (the Non-Audit Services Policy) and procedures for the pre-approval of all audit services and permitted non-audit services undertaken by the external auditor, the principal purpose of which is to ensure that the independence of the external auditor is not impaired. The policies and procedures cover three categories of work: audit services; audit-related services; and tax services. The policies define the type of work that falls within each of these categories and the non-audit services that the external auditor is prohibited from performing under the rules of the SEC and other relevant UK and US professional and regulatory requirements. The pre-approval procedures permit certain audit, audit-related and tax services to be performed by the external auditor during the year, subject to fee limits agreed with the Audit Committee in advance. The CFO (supported by the Vice-President, Group Financial Reporting) monitors the status of all services being provided by the external auditor. The procedures also deal with placing non-audit work out for tender, where appropriate. Authority to approve work in excess of the pre-agreed fee limits is delegated to the Chairman of the Audit Committee together with one other Audit Committee member in the first instance. A standing agenda item at Audit Committee meetings covers the operation of the pre-approval procedures and regular reports are provided to the full Audit Committee.

In 2014, non-audit services provided to the Company by KPMG included tax compliance services and audit services in relation to employee benefit funds, within the scope of the pre-approved services set out in the Non-Audit Services Policy. The Audit Committee supported management’s decision to enter into an outsourcing arrangement for tax and statutory accounts preparation work, which, following implementation in 2014, resulted in such work previously undertaken by KPMG transitioning to another firm. In addition, for other non-audit services, management has determined that the Company’s auditors

AstraZeneca successfully defended the claims against it in the Nexium anti-trust case and the DOJ decided to discontinue its investigation into the Brilinta PLATO trial.

Tax accountingThe Audit Committee considered the overall tax affairs of the Group in 2014, noting that the exposure associated with significant tax contingencies had reduced somewhat but remains significant. The Audit Committee considered the key tax developments at OECD, including proposed requirements for tax transparency through country-by-country reporting. The Audit Committee concluded that the Company would be well positioned to meet such additional requirements.

Post-retirement benefitsPension accounting continues to be a significant area of focus. The Audit Committee reviewed solvency ratios for all significant pension plans and assessed ongoing actions to secure the long-term funding of the plans. The Audit Committee supported the Company’s funding plans.

Internal controlsAt each quarterly meeting, the Audit Committee receives a report of the matters considered by the Disclosure Committee during the quarter. At the February 2015 meeting, the CFO presented to the Audit Committee the conclusions of the CEO and the CFO following the evaluation of the effectiveness of our disclosure controls and procedures required by Item 15(a) of Form 20-F at 31 December 2014. Based on their evaluation, the CEO and the CFO concluded that, as at that date, we maintain an effective system of disclosure controls and procedures.

There was no change in our internal control over financial reporting that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Appointing the auditor and safeguards on non-audit servicesWe noted in our 2012 Annual Report that, having reviewed the changes to the UK Corporate Governance Code with regard to putting the external audit contract out to tender at least every 10 years, and cognisant of the fact that the lead audit partner at KPMG rotated in 2013, the Audit Committee determined that the audit would be put out to tender by 2018 in accordance

should only be engaged where they are the only credible choice of service provider for a particular piece of work. At its meeting in July 2014, the Audit Committee determined that, with immediate effect, all tax services to be performed by the auditor should be presented to the Audit Committee for pre-approval. This decision was in response to EU legislation that will restrict the non-audit services that can be provided by the external auditor and which is expected to be effective from June 2016.

Fees paid to the auditor for audit, audit-related and other services are analysed in Note 29 to the Financial Statements on page 188. Fees for non-audit services amounted to 34% of the fees paid to KPMG for audit, audit-related and other services in 2014.

Assessing external audit effectivenessIn accordance with its normal practice, the Audit Committee considered the performance of KPMG. It also considered KPMG’s compliance with the independence criteria under the relevant statutory, regulatory and ethical standards applicable to auditors and assessed its objectivity, taking into account the level of challenge provided around the critical estimates and judgements involved in our financial reporting and the quality of our internal control over financial reporting. Having considered all these factors, the Audit Committee recommended to the Board that a resolution for the re-appointment of KPMG as the Company’s external auditor for the year ending 31 December 2015 be proposed to shareholders at the AGM in April 2015.

Consistent with current market practice, KPMG’s services to the Company are provided pursuant to terms of engagement, which are reviewed by the Audit Committee. Neither these terms of engagement nor any other agreement include any contractual obligations under which the Board would be prevented from appointing a different audit firm were they to consider this to be in the best interests of the Group. The Audit Committee, through management, continues to maintain contact and dialogue with other major audit firms who are familiar with the Group’s business for succession purposes as required.

99AstraZeneca Annual Report and Form 20-F Information 2014

Corporate G

overnance

1.

2. 3.

Barclays has a dedicated Tax Risk Committee, alongside a number of other risk committees which report to the Board. Details are given of the responsibilities of the committee, which covers monitoring the risk profile and governing the application of the control framework.

Burberry sets out its tax governance framework providing details of those involved in the tax affairs of the group, including the Chief Financial Officer and the Group Risk and Audit Committees.

AstraZeneca makes a specific reference to the OECD’s country‑by‑country reporting requirements, indicating that the Audit Committee has considered these, concluding that the group is well positioned to meet them.

27December 2015

Source: 1. Barclays PLC, Annual Report 2014 – page 1262. Burberry Group plc, Annual Report 2014/15 – page 803. AstraZeneca, Annual Report and Form 20‑F Information 2014 – page 994. British American Tobacco, Annual Report 2014 – pages 33 & 2045. Coca‑Cola HBC, 2014 Integrated Annual Report – page 53

Strategic ReportGovernanceFinancial Statements

33 British American Tobacco Annual Report 2014

Page TitleBUSINESS ENVIRONMENTBUSINESS ENVIRONMENT

Key Group risk factors continuedExcise and tax risk factors

Significant excise increases or structure changes

Disputed taxes, interest and penalties

Time frameShort term and long term

Strategic impactGrowth (organic revenue growth)

Risk ownerRegional Directors

Time frameShort term

Strategic impactProductivity (capital effectiveness)

Risk ownerFinance Director

Tobacco products are subject to substantial excise and sales taxes in most countries in which the Group operates. In many of these countries, taxes are generally increasing, but the rate of increase varies country by country and between different types of tobacco products.

A number of significant excise increases have taken place over the past three years, for example in Australia, Russia, Brazil, South Korea, Indonesia, Turkey, the Philippines and New Zealand. To date, the Group has been able to balance these increases with its geographic spread, and continues to develop effective measures to address the risk.

Principal causes – Fiscal pressures for higher government revenues.

– Increases advocated within the context of national health policies.

– Insufficient opportunity to engage with stakeholders in meaningful dialogue.

Potential impact – Consumers reject the Group’s legitimate tax-paid products for products from illicit sources.

– Reduced legal industry volumes.

– Reduced sales volume and/or portfolio erosion.

– Some absorption of excise increases.

Mitigation activities – Requirement for Group companies to have in place formal pricing and excise strategies including contingency plans, with annual risk assessments.

– Pricing, excise and trade margin committees in markets, with regional and global support.

– Engagement with local tax and customs authorities, where appropriate, in particular in relation to the increased risk to excise revenues from higher illicit trade.

– Portfolio reviews to ensure appropriate balance and coverage across price segments.

– Monitoring of economic indicators, government revenues and the political situation.

– Central team in place to define the excise management framework, develop training materials, monitor and engage with international financial institutions on excise and anti-illicit trade matters.

The Group may face significant financial penalties, including the payment of interest, in the event of an unfavourable ruling by a tax authority in a disputed area.

Principal causes – Unfavourable ruling by tax authorities in disputed areas and aggressive auditing and/or pursuit of tax claims.

Potential impact – Significant fines and potential legal penalties.

– Disruption and loss of focus on the business due to diversion of management time.

– Impact on profit and dividend.

Mitigation activities – End market tax committees.

– Internal tax function provides dedicated advice and guidance, and external advice sought where needed.

– Engagement with tax authorities at Group, regional and individual market level.

204 British American Tobacco Annual Report 2014

FINANCIAL STATEMENTS

Strategic ReportGovernanceFinancial Statements

Notes on the Accounts continued

30 Contingent liabilities and financial commitments continuedGeneral litigation conclusion84. While it is impossible to be certain of the outcome of any particular

case or of the amount of any possible adverse verdict, the Group believes that the defences of the Group’s companies to all these various claims are meritorious on both the law and the facts, and a vigorous defence is being made everywhere. If an adverse judgement is entered against any of the Group’s companies in any case, an appeal will be made. Such appeals could require the appellants to post appeal bonds or substitute security in amounts which could in some cases equal or exceed the amount of the judgement. In any event, the Group has the benefit of the RJRT Indemnification with regard to US litigation, excluding the litigation brought by the shareholders of Reynolds and Lorillard. At least in the aggregate, and despite the quality of defences available to the Group, it is not impossible that the Group’s results of operations or cash flows in particular quarterly or annual periods could be materially affected by this and by the final outcome of any particular litigation.

85. Having regard to all these matters, with the exception of Fox River, the Group (i) does not consider it appropriate to make any provision in respect of any pending litigation; and (ii) does not believe that the ultimate outcome of this litigation will significantly impair the Group’s financial condition.

Tax disputesThe Group has exposures in respect of the payment or recovery of a number of taxes. The Group is and has been subject to a number of tax audits covering, amongst others, excise tax, value added taxes, sales taxes, corporate taxes, withholding taxes and payroll taxes.

The estimated costs of known tax obligations have been provided in these accounts in accordance with Group’s accounting policies. In some countries, tax law requires that full or part payment of disputed tax assessments be made pending resolution of the dispute. To the extent that such payments exceed the estimated obligation, they would not be recognised as an expense.

The following matters may proceed to litigation:

BrazilThe Brazilian Federal Tax Authority has filed claims against Souza Cruz seeking to reassess the profits of overseas subsidiaries to corporate income tax and social contribution tax. The first reassessment was for the years 2004–2006 in the sum of R$495 million (£119 million) to cover tax, interest and penalties. The second reassessment was for the years 2007 and 2008 in the amount of R$248 million (£60 million) to cover tax, interest and penalties.

Souza Cruz appealed both reassessments and the matters are at the second tier administrative appeal process. Regarding the first assessment the Souza Cruz appeal was rejected although the written judgment of that tribunal is still awaited. The appeal against the second assessment was upheld at the second tier tribunal and is closed. There is one further administrative appeal level before the matter enters the judicial system.

Souza Cruz received a further reassessment in 2014 for 2009 in the sum of R$219 million (£53 million) covering tax, interest and penalties and have appealed against the reassessment in full.

CanadaThe Canada Revenue Agency (CRA) had challenged the treatment of dividend income received by Imperial Tobacco Canada Ltd (ITCAN) from its investments in fellow group subsidiaries. Following the outcome of other cases in Canada, CRA have decided not to pursue the matter. A refund of payments made by ITCAN to pursue the appeal has been received from the federal and provincial authorities, including interest, with CAD$53 million (£29 million) being refunded in 2014 and the final balance of CAD$10 million (£5 million) being received in January 2015.

South AfricaIn 2011 SARS challenged the debt financing of British American Tobacco South Africa (BATSA) and reassessed the years 2006 to 2008. BATSA has objected to and appealed this reassessment. In 2014, SARS have also reassessed the years 2009 and 2010. BATSA have filed a detailed objection letter to the 2009/10 reassessments. Across the period from 2006 to 2010 the reassessments are for R1.74 billion (£96 million) covering both tax and interest.

The Group believes that the Group’s companies have meritorious defences in law and fact in each of the above matters and intends to pursue each dispute through the judicial system as necessary. The Group does not consider it appropriate to make provision for these amounts assessed nor for any potential further amounts which may be assessed in subsequent years.

While the amounts that may be payable or receivable in relation to tax disputes could be material to the results or cash flows of the Group in the period in which they are recognised, the Board does not expect these amounts to have a material effect on the Group’s financial condition.

VAT and duty disputesBangladeshThe operating company received a retrospective notice of imposition and realisation of VAT and supplementary duty on low price category brands from the National Board of Revenue (NBR) for approximately £158 million. The company is alleged to have evaded tax by selling the products in the low price segments rather than the mid-tier price segments.

Litigation has proceeded during 2014. A High Court Order to conclude the NBR hearing in 120 days (by 24 March 2015) was served to the Commissioner on 24 November 2014. Hearings scheduled for January and February 2015 were postponed and a new date for the hearing of the case by the NBR has not been set. The Ministry of Law has issued an opinion in respect of retrospective claims, supporting the company’s view.

Our principal risksPrincipal Risks Specific Risk that we face Mitigation Link to

strategy

Beverage Category Acceptability

Consumer HealthConsumer tastes and behaviours are constantly evolving at an increasingly rapid rate. Ensuring effective responses, including addressing any significant misperceptions of the health impact of soft drinks, is important to our business.

We maintain a focus on innovation in the products we offer, including expanding our range of reduced- and zero-calorie beverages and reducing the calorie content of many products in our portfolio. We promote active lifestyles and clearer labelling on packaging, supported by broader community engagement programmes focused on health and wellness. In these ways we actively counteract misperceptions.

Consumer Relevance

Political and Security Instability

Declining Consumer DemandChallenging market conditions continue to impact consumer confidence and disposable income. Our long-term sustainable growth depends on managing challenging and volatile macroeconomic conditions, such as the political and security instability experienced in Russia, Ukraine, and Nigeria.

Our OBPPC approach seeks opportunities by identifying and aligning the right brands, at the right price, in the right package and through the right channel. This enables us to expand our product offering in the marketplace and to win or maintain market share. Robust security management, crisis response and business continuity strategies support our ability to remain resilient in areas with heightened security risk.

Customer Preference

Employee Engagement & Retention

People and TalentIt is essential that we develop and maintain management capability across our markets. Our growth depends on our ability to attract and retain sufficient numbers of qualified and experienced employees.

Our focus on developing our leadership talent ensures the right people are in the right positions across the business. Our ongoing focus on employee engagement supports our values and promotes operational excellence. By focusing on managing our business in ways that are responsible and creating shared value with communities in which we work, we also seek to ensure that we are an attractive employer.

Community Trust

Product Quality & Food Safety

QualityQuality issues, or contamination of our products, could result in reputational damage and a reduction in volume and net sales revenue.

We have stringent processes in place to minimise the occurrence of quality issues. However, when issues arise, we have robust processes and systems in place that enable us to deal with them quickly and efficiently, thus ensuring that our customers and consumers retain confidence in our products.

Consumer Relevance

Commercial & Competition

Channel MixThe increasing concentration of retailers and independent wholesalers, on whom we depend to distribute our products, could lower our profitability. The immediate consumption channel remains under pressure as consumers increasingly switch to at-home consumption.

We continued to increase our presence in the discounter channel during 2014 and are working closely with our customers to identify opportunities for joint value creation. Our Right Execution Daily (RED) strategy continues to support our commitment to operational excellence, which enables us to respond to changing customer needs and channels.

Customer Preference

Tax & Treasury Foreign ExchangeOur foreign exchange exposure arises from changes in exchange rates between the Euro, the US dollar, and other currencies used in the markets we serve. During 2014, this exposure was particularly notable against currencies in Russia, Ukraine, and Nigeria.

To reduce currency risk and limit volatility, our treasury policy requires the hedging of 25% to 80% of rolling 12-month forecasted transactional exposures. Hedging beyond a 12-month period may occur if forecast transactions are highly probable. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations. These contracts normally mature within one year.

Cost Leadership

TaxationRegulations around consumer health and the risk of taxation on our products, could impact demand and affect our profitability. In 2014, a number of governments continued to contemplate taxes targeting our products and packaging waste recovery. This is a trend we expect to continue.

We continue to proactively work with regulators to ensure that the facts are understood and our products are not singled out unfairly.

Stakeholder Relationships

Strategic Stakeholder RelationshipsThe Group relies on our strategic relationships and agreements with The Coca-Cola Company, Monster Energy and our premium spirits partners. Any termination of agreements, or renewal at terms less favourable than currently experienced, could adversely impact our business.

Our management across the business focuses on effective day-to-day interaction with our strategic partners to ensure that we work together as effective partners for growth. We engage in joint projects and business planning, focus on strategic issues, and participate in ‘Top to Top’ senior management forums.

Community Trust

Coca-Cola HBC 2014 Integrated Annual Report 53

Strategic Report

Our principal risksPrincipal Risks Specific Risk that we face Mitigation Link to

strategy

Beverage Category Acceptability

Consumer HealthConsumer tastes and behaviours are constantly evolving at an increasingly rapid rate. Ensuring effective responses, including addressing any significant misperceptions of the health impact of soft drinks, is important to our business.

We maintain a focus on innovation in the products we offer, including expanding our range of reduced- and zero-calorie beverages and reducing the calorie content of many products in our portfolio. We promote active lifestyles and clearer labelling on packaging, supported by broader community engagement programmes focused on health and wellness. In these ways we actively counteract misperceptions.

Consumer Relevance

Political and Security Instability

Declining Consumer DemandChallenging market conditions continue to impact consumer confidence and disposable income. Our long-term sustainable growth depends on managing challenging and volatile macroeconomic conditions, such as the political and security instability experienced in Russia, Ukraine, and Nigeria.

Our OBPPC approach seeks opportunities by identifying and aligning the right brands, at the right price, in the right package and through the right channel. This enables us to expand our product offering in the marketplace and to win or maintain market share. Robust security management, crisis response and business continuity strategies support our ability to remain resilient in areas with heightened security risk.

Customer Preference

Employee Engagement & Retention

People and TalentIt is essential that we develop and maintain management capability across our markets. Our growth depends on our ability to attract and retain sufficient numbers of qualified and experienced employees.

Our focus on developing our leadership talent ensures the right people are in the right positions across the business. Our ongoing focus on employee engagement supports our values and promotes operational excellence. By focusing on managing our business in ways that are responsible and creating shared value with communities in which we work, we also seek to ensure that we are an attractive employer.

Community Trust

Product Quality & Food Safety

QualityQuality issues, or contamination of our products, could result in reputational damage and a reduction in volume and net sales revenue.

We have stringent processes in place to minimise the occurrence of quality issues. However, when issues arise, we have robust processes and systems in place that enable us to deal with them quickly and efficiently, thus ensuring that our customers and consumers retain confidence in our products.

Consumer Relevance

Commercial & Competition

Channel MixThe increasing concentration of retailers and independent wholesalers, on whom we depend to distribute our products, could lower our profitability. The immediate consumption channel remains under pressure as consumers increasingly switch to at-home consumption.

We continued to increase our presence in the discounter channel during 2014 and are working closely with our customers to identify opportunities for joint value creation. Our Right Execution Daily (RED) strategy continues to support our commitment to operational excellence, which enables us to respond to changing customer needs and channels.

Customer Preference

Tax & Treasury Foreign ExchangeOur foreign exchange exposure arises from changes in exchange rates between the Euro, the US dollar, and other currencies used in the markets we serve. During 2014, this exposure was particularly notable against currencies in Russia, Ukraine, and Nigeria.

To reduce currency risk and limit volatility, our treasury policy requires the hedging of 25% to 80% of rolling 12-month forecasted transactional exposures. Hedging beyond a 12-month period may occur if forecast transactions are highly probable. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations. These contracts normally mature within one year.

Cost Leadership

TaxationRegulations around consumer health and the risk of taxation on our products, could impact demand and affect our profitability. In 2014, a number of governments continued to contemplate taxes targeting our products and packaging waste recovery. This is a trend we expect to continue.

We continue to proactively work with regulators to ensure that the facts are understood and our products are not singled out unfairly.

Stakeholder Relationships

Strategic Stakeholder RelationshipsThe Group relies on our strategic relationships and agreements with The Coca-Cola Company, Monster Energy and our premium spirits partners. Any termination of agreements, or renewal at terms less favourable than currently experienced, could adversely impact our business.

Our management across the business focuses on effective day-to-day interaction with our strategic partners to ensure that we work together as effective partners for growth. We engage in joint projects and business planning, focus on strategic issues, and participate in ‘Top to Top’ senior management forums.

Community Trust

Coca-Cola HBC 2014 Integrated Annual Report 53

Strategic Report

4.

5.

British American Tobacco identifies tax disputes as a risk to the business, broadening the focus to taxes other than corporation tax. The issue is visited in a number of areas in its reporting, including the risk review, Audit Committee activities during the year, and details of the group’s contingent liabilities.

Coca‑Cola HBC highlights the ongoing risk to the business of regulations around consumer health and the risk of specific taxes on its products. Mitigation activity includes work with regulators to ensure that positions are understood.



2. MNCs

31Section 2 Our performance

OU

R B

USIN

ESS

OU

R p

ER

fOR

ma

Nc

EO

UR

SOc

Ial Im

pac

tG

Ov

ER

Na

Nc

EfIN

aN

cIa

l Sta

tE

mE

Nt

S

Net acquisition activity and foreign exchange rate movements are the largest contributors to the increase in the Group’s net debt. Reflecting the geographical and currency split of our business, a large proportion of our debt is denominated in US dollars (see note 19 for our policy). The strengthening of the US dollar against sterling during 2014 (from $1.66 to $1.56:£1) increases the sterling equivalent value of our reported net debt.

The Group’s credit ratings remained unchanged during the year. The long-term ratings are Baa1 from Moody’s and BBB+ from Standard & Poor’s, and the short-term ratings are P2 and A2 respectively. In January 2014, Moody’s changed the outlook on its short-term and long-term ratings from ‘Stable’ to ‘Negative’. In May 2014, the Group accessed the capital markets, raising €500m through the sale of notes maturing in May 2021 and bearing interest at 1.875%. The notes were swapped to floating rate in US dollars to conform with the policy described in note 19. The Group has a $1,750m committed revolving credit facility which was refinanced in August 2014 and matures in August 2019. At 31 December 2014 this facility was undrawn. The facility is used for short-term drawings and providing refinancing capabilities, including acting as a back-up for our US commercial paper programme. This programme is primarily used to finance our US working capital requirements, in particular our US educational businesses which have a peak borrowing requirement in June. At 31 December 2014, no commercial paper was outstanding. The Group also maintains other committed and uncommitted facilities to finance short-term working capital requirements in the ordinary course of business. Further details of the Group’s approach to the management of financial risks are set out in note 19 to the financial statements.

taxation

The effective tax rate on adjusted earnings in 2014 was 17.9% as compared to an effective rate of 14.6% in 2013. Our overseas profits, which arise mainly in the US, are largely subject to tax at higher rates than that in the UK (which had an effective statutory rate of 21.5% in 2014 and 23.25% in 2013). These higher tax rates were largely offset by amortisation-related tax deductions and by adjustments arising from settlements with tax authorities. Both these items were less significant in 2014 than they had been in 2013.

The reported tax charge on a statutory basis in 2014 was £63m (20.7%) compared to a charge of £87m (22.8%) in 2013. The decrease in the statutory rate is mainly due to tax benefits arising on the increase in intangible charges only partly offset by the factors affecting the adjusted rate as described above.

Tax paid in 2014 was £163m compared to £246m in 2013. Tax paid in 2013 was unusually high as a result of the permitted deferral of US tax payments in 2012 following Hurricane Sandy. These payments were subsequently made in 2013 and were accompanied by additional payments arising from settlements with tax authorities, including £55m relating to prior year disposals.

Discontinued operations

In October 2012, Pearson and Bertelsmann announced an agreement to create a new consumer publishing business by combining Penguin and Random House. The transaction completed on 1 July 2013 and from that point, Pearson no longer controlled the Penguin Group of companies and has equity accounted for its 47% associate interest in the new Penguin Random House (PRH) venture.

Financial Statements

– analysis of items in the primary statements continuedNotes to the consolidated financial statements

Unaudited commentary on tax

Tax strategyNational Grid manages its tax affairs in a proactive and responsible way in order to comply with all relevant legislation and minimise reputational risk. As a regulated public utility we are very conscious of the need to manage our tax affairs responsibly in the eyes of our stakeholders. We have a good working relationship with all relevant tax authorities and actively engage with them in order to ensure that they are fully aware of our view of the tax implications of our business initiatives. Management responsibility and oversight for our tax strategy, which is approved by the Finance Committee, rests with the Finance Director and the Global Tax and Treasury Director who monitor our tax activities and report to the Finance Committee.

Total UK tax contributionThis is the third year we have disclosed additional information in respect of our total UK tax contribution for consistency and to aid transparency in an area in which there remains significant public interest. As was the case in prior years, the total amount of taxes we pay and collect in the UK year on year is significantly more than just the corporation tax which we pay on our UK profits. Within the total, we again include other taxes paid such as business rates and taxes on employment together with employee taxes and other indirect taxes.

For 2014/15 our total tax contribution to the UK Exchequer was £1.5bn (2013/14: £1.4bn). Taxes borne in 2015 were £761m, a 4% increase on taxes borne in 2014 of £733m and primarily due to higher corporation tax payments in the current year. Our 2013/14 total tax contribution of £1.4bn resulted in National Grid being the 13th highest contributor of UK taxes based on the results of the Hundred Group’s 2014 Total Tax Contribution Survey, a position commensurate with the size of our business and capitalisation relative to other contributors to the Survey. In 2013 we were in 17th position. In 2014 we ranked 9th in respect of taxes borne.

National Grid’s contribution to the UK economy is again broader than just the taxes it pays over to and collects on behalf of HMRC. The Hundred Group’s 2014 Total Tax Contribution Survey ranks National Grid in 4th place in respect of UK capital expenditure on fixed assets. For instance, National Grid’s economic contribution also supports a significant number of UK jobs in our supply chain.

The most significant amounts making up the 2014/15 total tax contribution were as follows:

UK total tax contribution 2014/15Taxes borne £m Taxes collected £m

55

340

353596

146

112

Business rates OtherVAT PAYE and NIC UK corporation tax

761 742

Tax transparencyThe UK tax charge for the year disclosed in the financial statements in accordance with accounting standards and the UK corporation tax paid during the year will differ. For transparency we have included a reconciliation below of the tax charge per the income statement to the UK corporation tax paid in 2014/15.

The tax charge for the Group as reported in the income statement is £617m (2013/14: £284m). The UK tax charge is £437m (2013/14: £51m) and UK corporation tax paid was £353m (2013/14: £329m), with the principal differences between these two measures as follows:

Year ended 31 March

Reconciliation of UK total tax charge to UK corporation tax paid

2015£m

2014£m

Total UK tax charge (current tax £307m (2014: £346m) and deferred tax £130m (2014: £295m credit)) 437 51

Adjustment for non-cash deferred tax (charge)/credit (130) 295

Adjustments for current tax credit in respect of prior years 2 9

UK current tax charge 309 355UK corporation tax instalment payments

not payable until the following year (127) (179)UK corporation tax instalment payments in

respect of prior years paid in current year 171 153

UK corporation tax paid 353 329

Tax lossesWe have total unrecognised deferred tax assets in respect of losses of £255m (2013/14: £280m) of which £250m (2013/14: £274m) are capital losses in the UK as set out above. These losses arose as a result of the disposal of certain businesses or assets and may be available to offset against future capital gains in the UK.

Development of future tax policyWe believe that the continued development of a coherent and transparent tax policy in the UK is critical to help drive growth in the economy.

We continue to contribute to research into the structure of business tax and its economic impact by contributing to the funding of the Oxford University Centre for Business Tax at the Saïd Business School.

We are a member of a number of industry groups which participate in the development of future tax policy, including the Hundred Group, which represents the views of Finance Directors of FTSE 100 companies and several other large UK companies. Our Group Finance Director is Chairman of its Tax Committee. This helps to ensure that we are engaged at the earliest opportunity on tax issues which affect our business. In the current year we have reviewed and responded to a number of HMRC consultations, the subject matter of which directly impacts taxes borne or collected by our business.

110

1.

3.

2.

National Grid provides a numerical reconciliation to explain why the UK tax charge differs from the UK cash tax paid in the year.

Pearson provides analysis of the movement over the year for its adjusted effective tax rate, effective tax rate and cash tax paid, providing reasons for the change in each measure.

Legal and General use a ‘waterfall chart’ to illustrate and explain the differences between the tax charge reported in the income statement and the cash tax paid in the year.

29December 2015

Source: 1. Pearson plc, Annual report and accounts 2014 – page 312. National Grid, Annual Report and Accounts 2014/15 – page 1103. Legal & General Group plc, Annual Report and Accounts 2014 – page 374. SABMiller plc, Our Approach to Tax 2015 – page 19

SABMiller plc, Annual Report 2015 – page 41

Tax lossesIn any group of companies there may be times when various subsidiaries are in a tax loss position. Within the group, examples of tax loss situations include those that exist within the UK, the Netherlands, Australia and India. Where we have incurred losses but expect there will be sufficient taxable profits in future years, we recognise a deferred tax asset in respect of the losses as we expect to fully recover the value of the asset.

Some examples of tax loss situations in our group are discussed below.

• In the UK, the costs of operating our corporate headquarters outweigh the profitability of our UK trading operation. We do not recognise a deferred tax asset in respect of these losses. However, as a result of our trading operation our total tax contribution in the UK was US$299 million covering excise, VAT and other taxes (2014: US$267 million).

• In Australia, as well as incurring financing costs in acquiring the Foster’s group, consumer sentiment remains subdued and we have faced continued pressure on beer category volumes and profitability. Here we expect that there will be sufficient taxable profits in future years and so have recognised a deferred tax asset in relation to these losses. As shown on page 9, our total tax contribution in Australia was US$1,225 million, covering excise, FDT and other taxes (2014: US$1,671 million).

• In India, we operate in a challenging environment. This year we have recognised an exceptional impairment in respect of this business, reflecting the increased regulatory and excise challenges. We do not expect these conditions to reverse in the medium term. In this situation we have not accounted for a deferred tax asset on these losses.

• Our Netherlands business has had brought forward tax losses, however, we expect it to become tax-paying in the near future. We have recognised deferred tax assets in respect of these losses.

19SABMiller plc Our Approach to Tax 2015

Net exceptional charges of US$138 million before fi nance costs and tax were reported during the year (2014: US$202 million) which included net exceptional charges of US$63 million (2014: US$5 million) related to our share of associates’ and joint ventures’ exceptional charges. The net exceptional charges included:

• US$313 million charge in respect of the impairment of our business in India;

• US$401 million gain, after associated costs, on the disposal of our investment in the Tsogo Sun hotels and gaming business;

• US$45 million additional gain on the 2012 disposal of our Angolan businesses to the Castel group in Africa;

• US$69 million charge related to the cost and effi ciency programme; and

• US$139 million charge related to the fi nal year of the integration programme and restructuring costs in Australia.

Our share of associates’ and joint ventures’ exceptional items in the year comprised a US$63 million charge relating to the impairment of goodwill and intangible assets in Efes’ Russian and Ukrainian businesses.

In addition to the above, we incurred net exceptional costs within fi nance costs of US$15 million including a charge of US$48 million as a result of exercising our issuer call option to redeem in full our US$850 million 6.5% notes due 2016, partially offset by a gain of US$33 million on the recycling of foreign currency translation reserves following the repayment of an intercompany loan.

Finance costsNet fi nance costs were US$637 million, a 1% decrease on the prior year’s US$645 million primarily as a result of the reduction in net debt over the course of the year including the repayment of some higher interest rate bonds, partially offset by foreign exchange losses. Net fi nance costs in the year included net exceptional costs of US$15 million, as described above, which have been excluded from adjusted fi nance costs and adjusted EPS. Adjusted net fi nance costs are reconciled to net fi nance costs in the table below. They were 4% lower than the prior year. Interest cover increased to 10.7 times from 10.3 times in the prior year.

2015US$m

2014US$m

Net fi nance costs 637 645Net exceptional fi nance costs (15) –Adjusted fi nance costs 622 645

We expect fi nance costs in the 2016 fi nancial year to be lower than those in 2015 as a result of reduced net debt.

TaxThe effective rate of tax for the year (before amortisation of intangible assets other than computer software, and exceptional items) was 26.0%, the same as in the prior year.

We expect our effective tax rate for the forthcoming year will be between 26% and 27%. In the medium term we continue with our expectation that the effective tax rate will be between 27% and 29%.

The effective rate of tax is calculated as the ratio of adjusted tax expense to adjusted profi t before tax as shown below.

2015US$m

2014US$m

(restated)

Taxation expense 1,273 1,173Tax on amortisation 117 123Tax on exceptional items (83) 27Share of associates’ and joint ventures’ taxation 157 162Adjusted tax expense 1,464 1,485

Profi t before tax 4,830 4,823Exceptional items (excluding fi nance costs

exceptional items)138 202

Exceptional fi nance costs 15 –Amortisation 423 436Share of associates’ and joint ventures’ tax and

non-controlling interests236 258

Adjusted profi t before tax 5,642 5,719

Effective tax rate 26.0% 26.0%

The reported corporate tax charge for the year was US$1,273 million, an increase of 9% compared with US$1,173 million in the prior year, primarily as a result of the tax on the exceptional profi t realised on the disposal of our investment in Tsogo Sun.

Corporate income taxes paid can be distorted relative to the annual tax charge as a result of the payment of a tax liability falling outside the fi nancial year, and because of deferred tax accounting treatment. Uncertainty of interpretation and application of tax law in some jurisdictions also contributes to differences between the amounts paid and those charged to the income statement. The amount of tax paid in the year decreased to US$1,439 million from US$1,596 million in the prior year. The decrease was largely as a result of the signifi cant tax prepayment in Australia in the prior year, partially offset by the tax paid in relation to the exceptional gain on the disposal of our investment in Tsogo Sun.

We are publishing an updated version of Our Approach to Tax report for 2015 which provides details of how we manage our taxes. We are keen to develop this transparency initiative and remain committed to ensuring that our reporting refl ects best practice and regulatory developments.

Tax revenues play a key role in funding local public services and supporting vibrant communities. We pay a signifi cant amount of tax and in many countries we are one of the largest contributors to government income. We are pleased that, through our business activities, our tax contributions across the world help the development of the many economies in which we operate.

In all our tax affairs, we seek to work proactively with local tax authorities to ensure that we comply with legislation and pay the right amount of tax. Within this framework, we aim to adopt a balanced and commercial position, making decisions as transparently as possible. We recognise that tax policy and management are a signifi cant part of running a sustainable and responsible business.

41SABMiller plc Annual Report 2015

Strategic report

Net exceptional charges of US$138 million before fi nance costs and tax were reported during the year (2014: US$202 million) which included net exceptional charges of US$63 million (2014: US$5 million) related to our share of associates’ and joint ventures’ exceptional charges. The net exceptional charges included:

• US$313 million charge in respect of the impairment of our business in India;

• US$401 million gain, after associated costs, on the disposal of our investment in the Tsogo Sun hotels and gaming business;

• US$45 million additional gain on the 2012 disposal of our Angolan businesses to the Castel group in Africa;

• US$69 million charge related to the cost and effi ciency programme; and

• US$139 million charge related to the fi nal year of the integration programme and restructuring costs in Australia.

Our share of associates’ and joint ventures’ exceptional items in the year comprised a US$63 million charge relating to the impairment of goodwill and intangible assets in Efes’ Russian and Ukrainian businesses.

In addition to the above, we incurred net exceptional costs within fi nance costs of US$15 million including a charge of US$48 million as a result of exercising our issuer call option to redeem in full our US$850 million 6.5% notes due 2016, partially offset by a gain of US$33 million on the recycling of foreign currency translation reserves following the repayment of an intercompany loan.

Finance costsNet fi nance costs were US$637 million, a 1% decrease on the prior year’s US$645 million primarily as a result of the reduction in net debt over the course of the year including the repayment of some higher interest rate bonds, partially offset by foreign exchange losses. Net fi nance costs in the year included net exceptional costs of US$15 million, as described above, which have been excluded from adjusted fi nance costs and adjusted EPS. Adjusted net fi nance costs are reconciled to net fi nance costs in the table below. They were 4% lower than the prior year. Interest cover increased to 10.7 times from 10.3 times in the prior year.

2015US$m

2014US$m

Net fi nance costs 637 645Net exceptional fi nance costs (15) –Adjusted fi nance costs 622 645

We expect fi nance costs in the 2016 fi nancial year to be lower than those in 2015 as a result of reduced net debt.

TaxThe effective rate of tax for the year (before amortisation of intangible assets other than computer software, and exceptional items) was 26.0%, the same as in the prior year.

We expect our effective tax rate for the forthcoming year will be between 26% and 27%. In the medium term we continue with our expectation that the effective tax rate will be between 27% and 29%.

The effective rate of tax is calculated as the ratio of adjusted tax expense to adjusted profi t before tax as shown below.

2015US$m

2014US$m

(restated)

Taxation expense 1,273 1,173Tax on amortisation 117 123Tax on exceptional items (83) 27Share of associates’ and joint ventures’ taxation 157 162Adjusted tax expense 1,464 1,485

Profi t before tax 4,830 4,823Exceptional items (excluding fi nance costs

exceptional items)138 202

Exceptional fi nance costs 15 –Amortisation 423 436Share of associates’ and joint ventures’ tax and

non-controlling interests236 258

Adjusted profi t before tax 5,642 5,719

Effective tax rate 26.0% 26.0%

The reported corporate tax charge for the year was US$1,273 million, an increase of 9% compared with US$1,173 million in the prior year, primarily as a result of the tax on the exceptional profi t realised on the disposal of our investment in Tsogo Sun.

Corporate income taxes paid can be distorted relative to the annual tax charge as a result of the payment of a tax liability falling outside the fi nancial year, and because of deferred tax accounting treatment. Uncertainty of interpretation and application of tax law in some jurisdictions also contributes to differences between the amounts paid and those charged to the income statement. The amount of tax paid in the year decreased to US$1,439 million from US$1,596 million in the prior year. The decrease was largely as a result of the signifi cant tax prepayment in Australia in the prior year, partially offset by the tax paid in relation to the exceptional gain on the disposal of our investment in Tsogo Sun.

We are publishing an updated version of Our Approach to Tax report for 2015 which provides details of how we manage our taxes. We are keen to develop this transparency initiative and remain committed to ensuring that our reporting refl ects best practice and regulatory developments.

Tax revenues play a key role in funding local public services and supporting vibrant communities. We pay a signifi cant amount of tax and in many countries we are one of the largest contributors to government income. We are pleased that, through our business activities, our tax contributions across the world help the development of the many economies in which we operate.

In all our tax affairs, we seek to work proactively with local tax authorities to ensure that we comply with legislation and pay the right amount of tax. Within this framework, we aim to adopt a balanced and commercial position, making decisions as transparently as possible. We recognise that tax policy and management are a signifi cant part of running a sustainable and responsible business.

41SABMiller plc Annual Report 2015

Strategic report

4.

SABMiller provides details of the tax losses in the group, covering the size of the losses and whether a deferred tax asset has been recognised in respect of the losses.

It also provides an adjusted effective tax rate, with a numerical reconciliation for both the adjusted profit before tax and the adjusted tax expense to the reported figure for each measure, giving details of the adjusting items.



2. MNCs

51RELX Group Annual Reports and Financial Statements 2014

Financial statements and other inform

ationG

overnanceB

usiness reviewO

verview

Profit continued

Financial review

Underlying costs were up 3%, reflecting investment in global technology platforms and the launch of new products and services, partly offset by continued process innovation. Actions were taken across our businesses to improve cost efficiency. Total operating costs, including the impact of acquisitions and disposals, decreased by 6%. At constant currencies, total operating costs decreased by 1%.

The net pension expense, excluding the net pension financing charge, was £95m (2013: £61m), including settlement and past service credits of £15m (2013: £59m).

The overall adjusted operating margin at 30.1% was 1.1 percentage points higher than in the prior year. This included a 0.9 percentage point benefit to margin from portfolio change and a 0.1 percentage point decrease from currency effects.

Interest expense, excluding the net pension financing charge, was £147m (2013: £177m). The reduction primarily reflects the benefit of term debt refinancing at lower rates and currency translation effects.

Adjusted profit before tax was £1,592m (2013: £1,572m), up 1%. At constant exchange rates, adjusted profit before tax was up 7%, reflecting the increase in constant currency adjusted operating profits and a lower net interest expense.

The adjusted effective tax rate on adjusted profit before tax was 23.5%, in line with the prior year. The effective tax rate excludes movements in deferred taxation assets and liabilities related to goodwill and acquired intangible assets, and includes the benefit of tax amortisation where available on those items. Adjusted operating profits and taxation are grossed up for the equity share of taxes in joint ventures.

The application of tax law and practice is subject to some uncertainty and amounts are provided in respect of this. Discussions with tax authorities relating to cross-border transactions and other matters are ongoing. Although the outcome of open items cannot be predicted, no significant impact on profitability is expected.

The adjusted net profit attributable to shareholders of £1,213m (2013: £1,197m) was up 1% and up 7% at constant currencies.

ADJUSTED OPERATING PROFIT ADJUSTED OPERATING PROFIT MARGIN

2011 2012 2013

1,7391,626 1,688* 1,749

2014 2011 2012 2013

30.1%27.1% 27.6%* 29.0%

2014

£m

* 2012 restated for IAS19. * 2012 restated for IAS19.

2014£m

2013£m Change

Changeat constantcurrencies

Change underlying

Adjusted figuresRevenue 5,773 6,035 –4% +1% +3%*Operating profit 1,739 1,749 –1% +5% +5%Operating margin 30.1% 29.0%Profit before tax 1,592 1,572 +1% +7%Net profit 1,213 1,197 +1% +7%Net margin 21.0% 19.8%Cash flow 1,662 1,703 –2% +3%Cash flow conversion 96% 97%Return on invested capital 12.8% 12.1%

* Excluding exhibition cycling.

The Group uses adjusted and underlying figures as additional performance measures. Adjusted figures primarily exclude the amortisation of acquired intangible assets and other items related to acquisitions and disposals, and the associated deferred tax movements. Reconciliation between the reported and adjusted figures are set out in note 10 to the combined financial statements on page 114. Underlying growth rates are calculated at constant currencies, and exclude the results of all acquisitions and disposals made in both the year and prior year and assets held for sale. Underlying revenue growth rates also exclude the effects of exhibition cycling. Constant currency growth rates are based on 2013 full year average and hedge exchange rates.

94118_Reed_AR_p048-060.indd 51 06/03/2015 09:08

54 FINANCIAL REVIEWCHIEF FINANCIAL OFFICER’S REPORT

Reported figures

2014£m

2013£m Change


Change underlying

Reported figuresRevenue 5,773 6,035 –4% +1% +3%*Operating profit 1,402 1,376 +2% +8%Profit before tax 1,229 1,196 +3% +9%Net profit 955 1,110 –14% –9%Net margin 16.5% 18.4%Net borrowings 3,550 3,072



Reported operating profit, after amortisation of acquired intangible assets and acquisition-related costs, was £1,402m (2013: £1,376m).

The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, decreased to £286m (2013: £318m) reflecting certain assets becoming fully amortised and currency effects. Acquisition-related costs were £30m (2013: £43m), including a charge for deferred consideration payments required to be expensed under IFRS.

The reported profit before tax was £1,229m (2013: £1,196m).

RECONCILIATION OF ADJUSTED AND REPORTED PROFIT BEFORE TAX

YEAR TO 31 DECEMBER 2014£m

2013£m

Adjusted profit before tax 1,592 1,572Amortisation of acquired intangible assets (286) (318)Acquisition-related costs (30) (43)Reclassification of tax in joint ventures (21) (12)Net pension financing charge (15) (19)Disposals and other non-operating items (11) 16

Reported profit before tax 1,229 1,196

Reported net finance costs of £162m (2013: £196m) include a charge of £15m (2013: £19m) in respect of the defined benefit pension schemes. Net pre-tax disposal losses were £11m (2013: gain of £16m) arising largely from the sale of certain Risk & Business Information businesses. These losses are increased by an associated tax charge of £3m (2013: £34m).

RECONCILIATION OF ADJUSTED AND REPORTED TAX CHARGE


2013£m

Adjusted tax charge (374) (370)Tax on disposals and other non-operating items (3) (34)Deferred tax credits from intangible assets 68 300Other items 40 23

Reported tax charge (269) (81)

The reported tax charge was £269m (2013: £81m). In 2013, the reported tax charge included a non-recurring deferred tax credit of £221m arising on the alignment of business assets with their global management structure. The reported net profit attributable to the parent companies’ shareholders was £955m (2013: £1,110m).

94118_Reed_AR_p048-060.indd 54 06/03/2015 09:08

54 FINANCIAL REVIEWCHIEF FINANCIAL OFFICER’S REPORT

Reported figures

2014£m

2013£m Change


Change underlying

Reported figuresRevenue 5,773 6,035 –4% +1% +3%*Operating profit 1,402 1,376 +2% +8%Profit before tax 1,229 1,196 +3% +9%Net profit 955 1,110 –14% –9%Net margin 16.5% 18.4%Net borrowings 3,550 3,072



Reported operating profit, after amortisation of acquired intangible assets and acquisition-related costs, was £1,402m (2013: £1,376m).

The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, decreased to £286m (2013: £318m) reflecting certain assets becoming fully amortised and currency effects. Acquisition-related costs were £30m (2013: £43m), including a charge for deferred consideration payments required to be expensed under IFRS.

The reported profit before tax was £1,229m (2013: £1,196m).

RECONCILIATION OF ADJUSTED AND REPORTED PROFIT BEFORE TAX


2013£m

Adjusted profit before tax 1,592 1,572Amortisation of acquired intangible assets (286) (318)Acquisition-related costs (30) (43)Reclassification of tax in joint ventures (21) (12)Net pension financing charge (15) (19)Disposals and other non-operating items (11) 16

Reported profit before tax 1,229 1,196

Reported net finance costs of £162m (2013: £196m) include a charge of £15m (2013: £19m) in respect of the defined benefit pension schemes. Net pre-tax disposal losses were £11m (2013: gain of £16m) arising largely from the sale of certain Risk & Business Information businesses. These losses are increased by an associated tax charge of £3m (2013: £34m).

RECONCILIATION OF ADJUSTED AND REPORTED TAX CHARGE


2013£m

Adjusted tax charge (374) (370)Tax on disposals and other non-operating items (3) (34)Deferred tax credits from intangible assets 68 300Other items 40 23

Reported tax charge (269) (81)

The reported tax charge was £269m (2013: £81m). In 2013, the reported tax charge included a non-recurring deferred tax credit of £221m arising on the alignment of business assets with their global management structure. The reported net profit attributable to the parent companies’ shareholders was £955m (2013: £1,110m).

94118_Reed_AR_p048-060.indd 54 06/03/2015 09:08

Governance &

remuneration


Investor information

Strategic report

156 GSK Annual Report 2014

14 Taxation Taxation charge based on profits for the year

2014 £m

2013 £m

2012 £m

UK current taxation (251) 265 170Overseas current taxation 993 1,284 1,510Total current taxation 742 1,549 1,680Total deferred taxation (605) (530) 242

137 1,019 1,922

The recognition of a deferred tax asset on tax losses expected to be used on completion of the Novartis transaction is included in the net deferred tax credit. In 2013 the deferred tax credit arose predominantly as a result of non cash items related to the continuing restructuring of our supply chain and intellectual property ownership.

The following table reconciles the tax charge calculated at the UK statutory rate on the Group profit before tax with the actual tax charge for the year. Information for 2013 and 2012 has been re-analysed and is presented on a comparable basis.

Reconciliation of taxation on Group profits2014

£m2014

%2013

£m2013

%2012

£m2012

%

Profit before tax 2,968 6,647 6,600UK statutory rate of taxation 638 21.5 1,545 23.3 1,617 24.5Differences in overseas taxation rates 406 13.7 196 2.9 278 4.2Benefit of intellectual property incentives (323) (10.9) (189) (2.8) (158) (2.4)R&D credits (72) (2.4) (88) (1.3) (73) (1.1)Inter-company inventory profit (27) (0.9) (121) (1.8) 73 1.1Impact of share-based payments 31 1.1 (2) – – –Benefit of previously unrecognised losses (205) (6.9) (18) (0.3) (40) (0.6)Permanent differences on disposals and acquisitions 23 0.8 (227) (3.4) (9) (0.1)Other permanent differences 264 8.8 301 4.4 (103) (1.6)Re-assessments of prior year estimates (617) (20.8) (197) (3.0) (145) (2.2)Disposal of associate – – (67) (1.0) – –Tax on unremitted earnings 19 0.6 20 0.3 26 0.4Deferred tax and other adjustments on restructuring – – (134) (2.0) 456 6.9Tax charge / tax rate 137 4.6 1,019 15.3 1,922 29.1

The Group operates in countries where the tax rate differs from the UK tax rate and the taxable profits earned and tax rates in those countries vary from year to year. In 2013, a £234 million deferred tax charge related to the unwinding of deferred profit in inventory arising from reorganisations of intellectual property ownership and supply chain restructuring was presented within differences in overseas tax rates. This impact has now been presented as restructuring for 2013 as this better reflects the nature of this item. The Group qualifies for intellectual property incentives such as patent box regimes in a number of countries. The permanent differences associated with disposals and acquisitions have been presented separately and in 2013 included the benefit of lower tax rates applied to the disposal of the Lucozade and Ribena business. The recognition of the deferred tax asset on tax losses expected to be used on completion of the Novartis transaction is shown in the benefit of previously unrecognised losses. Other permanent differences include non tax deductible legal settlements. Re-assessments of prior year estimates include a benefit of £478 million from the resolution of a number of tax matters in various countries.

Future tax charges may be affected by factors such as acquisitions, disposals, restructurings, the location of research and development activity, tax regime reforms, and agreements with tax authorities.

Tax on items charged to equity and statement of comprehensive income2014

£m2013

£m 2012

£m

Current taxation Share-based payments 55 31 34

55 31 34

Deferred taxation Share-based payments (59) 42 (25) Defined benefit plans 262 (286) 193 Exchange movements (2) – – Fair value movements on cash flow hedges (1) 1 – Fair value movements on available-for-sale investments (20) (22) –

180 (265) 168Total credit/(charge) to equity and statement of comprehensive income 235 (234) 202

All of the above items have been charged to the statement of comprehensive income except for tax on share based payments.

Notes to the financial statementscontinued

1.

2.

RELX quotes an adjusted effective tax rate, providing details of the adjustments through numerical reconciliations to both the adjusted profit before tax and adjusted tax charge.

GSK include numerical amounts and percentages to highlight the drivers of its tax rate in its effective to statutory rate reconciliation. It provides further commentary around some of the specific items included in the reconciliation.

31December 2015

Source: 1. RELX Group, Annual Reports and Financial Statements 2014 – pages 51 & 542. GSK, Annual Report 2014 – page 1563. Coca‑Cola HBC, 2014 Integrated Annual Report – page 148

3.

21. Finance costs Net finance costs for the years ended 31 December comprised:

2014

€ million2013

€ million

Interest income 10.0 10.0 Interest expense (59.3) (87.0)

Other finance cost (1.9) (2.3)

Net foreign exchange remeasurement losses (10.9) (0.5)

Finance charges paid with respect to finance leases (8.4) (9.0)

Finance costs (80.5) (98.8)Loss on net monetary position (2.4) (2.7)

Total finance costs (82.9) (101.5)Total finance costs, net (72.9) (91.5)

Other finance cost includes commitment fees on loan facilities, not drawn down, other similar fees and when applicable premium on debt buy back.

Belarus has been considered to be a hyperinflationary economy since the fourth quarter of 2011. The three year cumulative inflation exceeded 100% and therefore Belarus is consolidated in terms of the measuring unit at the balance sheet date and translated at the closing exchange rate. The restatement was based on conversion factors derived from the Belarusian Consumer Price Index (CPI) as compiled by the National Statistical Committee of the Republic of Belarus. The conversion factor used for December 2014 was 1.145 which resulted in a net monetary loss for 2014 of €2.4m. The conversion factor used for December 2013 was 1.136 which resulted in a net monetary loss for 2013 of €2.7m.

Capitalised borrowing costs in 2014 amounted to €0.5m (2013: €0.9m). The interest rate used to capitalise borrowing costs of the Group for 2014 was 3.08% (2013: 3.88%).

22. TaxThe tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

2014

€ million2013

€ million

Profit before tax per the income statement 352.0 294.1

Tax calculated at domestic tax rates applicable to profits in the respective countries 59.9 72.1

Additional local taxes in foreign jurisdictions 7.6 9.3

Tax holidays in foreign jurisdictions (1.1) (1.8)

Expenses non-deductible for tax purposes 19.8 27.3

Income not subject to tax (31.5) (34.1)

Changes in tax laws and rates 1.4 (8.2)

Current year tax losses not recognised 3.6 9.8

Utilisation of previously unrecognised post-acquisition tax losses – (0.3)

Recognition of previously unrecognised post-acquisition tax losses (0.7) (0.1)

Other (1.2) (1.1)

Income tax charge per the income statement 57.8 72.9

Non-deductible expenses for tax purposes include marketing and advertising expenses, service fees, bad debt provisions, entertainment expenses, certain employee benefits and stock options expenses and other items that, partially or in full, are not deductible for tax purposes in certain of our jurisdictions.

The income tax charge for the years ended 31 December is as follows:

2014

€ million2013

€ million

Current tax charge 80.5 67.2

Deferred tax charge (refer to Note 9) (22.7) 5.7

Total income tax charge 57.8 72.9

148 Coca-Cola HBC 2014 Integrated Annual Report

Notes to the Financial statements continued

Coca‑Cola HBC reconciles the tax charge for the year to the expected tax using a weighted statutory tax rate, which is calculated by considering the profits in each country of operation at the applicable domestic tax rates. It also provides further detail of items which are included in its ‘Expenses non‑deductible for tax purposes’ category.



2. MNCs

CommunityShareholders and investors

Retail and consumers

US$24,299mEconomic value2014: US$24,254m

US$10,639mTotal tax contribution

2014: US$10,750m

US$2,881mInterest and dividend to providers of capital2014: US$2,942m

Taxes

VA

T collected

Withholding taxes

Corporate taxes on profit

Taxes on production

Other business

taxes

Brewing

11SABMiller plc Our Approach to Tax 2015

This diagram shows how governments levy different taxes on the brewing of beer.

The main taxes involved are corporate income tax charged on our profits, excise duties levied on the production of beer, employment taxes and the VAT we collect from customers.

In addition to the taxes directly generated by our operations, there is also a multiplier effect in the form of the tax contributions made by our suppliers and by the retailers, restaurants and bars that sell our products. These taxes are generated indirectly and are not included in this diagram.

Employees

Community investments

US$8,817mOperating costs2014: US$9,020m

US$2,366mEmployee remuneration2014: US$2,337m

US$32mCommunity investments2014: US$32m

Suppliers

Value chain

Value chain

Tax flows

Economic value

Em

ployment taxes

10 SABMiller plc Our Approach to Tax 2015

The flow of tax

1.

2.

SABMiller uses a flowchart to illustrate the Total Tax Contribution, alongside its wider economic value added, at different stages of its global brewing supply chain.

Legal & General provide a summary table to illustrate the taxes borne and collected for each country, which is further broken down by type of tax. On its website, it also demonstrates the profile of taxes by country through individual pie charts.

33December 2015

Source: 1. SABMiller plc, Our Approach to Tax 2015 – pages 10 & 112. Legal & General Group plc, Tax Data – website3. Schroders plc, Our economic impact – website

3.

Schroders shows the breakdown of its total taxes, corporate income tax and business by region.



2. MNCs

Tax and our total contribution to public finances

Tax conduct and principles

We are committed to acting with integrity in all tax matters. We always seek to operate under a policy of full transparency with the tax authorities in all countries in which we operate, disclosing all relevant facts in full while seeking to build open and honest relationships in our day-to-day interactions with those authorities in line with the Tax Code of Conduct contained within our Tax Risk Management Strategy3.

In forming our own assessment of the taxes legally due for each of our businesses around the world, we follow the principles stated in our Tax Risk Management Strategy1. We have two important objectives: to protect value for our shareholders, in line with our broader fiduciary duties; and to comply fully with all relevant legal and regulatory obligations, in line with our stakeholders’ expectations.

However, tax law is often unclear and subject to a broad range of interpretations. Furthermore, the financial affairs of large multinational corporations are unavoidably complex: we typically process and submit more than 12,000 tax returns to tax authorities around the world every year. The assessment and management of tax uncertainty is therefore a significant challenge for any company of Vodafone’s scale, and the key issues are subject to review by the Board and Audit and Risk Committee.

Our overarching approach is to pursue clarity and predictability on all tax matters wherever feasible. We will only enter into commercial transactions where the associated approach to taxation is justifiable under any reasonable interpretation of the underlying facts as well as compliant in law and regulation. Our tax teams around the world are required to operate according to a clearly defined set of behaviours, including acting with integrity and communicating openly. These are aligned with the Vodafone Group Code of Conduct and the values set out in The Vodafone Way.

Contributing to the development of tax policy

When governments seek to develop or change tax policy, they invariably seek input from a wide range of interested stakeholders, including business advocacy groups and a large number of individual companies. Vodafone regularly engages with governments – typically through public consultation processes or in our role as a member of an industry group – to provide our perspective on how best to balance the need for government revenues from taxation against the need to ensure sustainable investment.

In focus: Vodafone and the OECD BEPS project

In 2013, the Organisation for Economic Cooperation and Development (OECD) began work on the ‘base erosion and profit-shifting’ (BEPS) initiative. ‘Base erosion’ is the term used to describe the reduction in a country’s overall tax revenues as a consequence of the fluid movement of corporate activity and funds between different jurisdictions. ’Profit-shifting’ is the term used to describe the artificial arrangements which move corporate profits from one jurisdiction to another lower-tax jurisdiction.

The BEPS initiative was developed in response to public concern about the integrity of national and international taxation systems in an ever more complex global economy. It is likely to change national and international tax rules dramatically, leading to a new set of standards for international cooperation and transparency, as well as an increased level of disputes on the allocation of taxing rights between countries.

Vodafone has long demonstrated its commitment to transparency through publishing details of its Tax Code of Conduct, Tax Risk Management Strategy and, more recently, this report. We welcome initiatives to increase transparency in this critically important area of public policy and support measures to eliminate artificial profit shifting and unfair tax competition.

We continue to engage constructively with the OECD both directly and through our membership of bodies such as the Technical Advisory Group on the Digital Economy, the Confederation of British Industry, the 100 Group and the International Alliance for Principled Taxation.

Our focus is to support the OECD in developing practical and workable recommendations that support international trade, incentivise greater investment in infrastructure and services, foster economic growth, employment and prosperity and generate greater public trust in the international tax system.

The UK government has announced its intention to implement the OECD’s recommendations regarding country-by-country reporting. These will require companies to report certain information to the UK tax authorities on a country-by-country basis, complementing Vodafone’s ongoing commitment to tax transparency and country-level disclosure as exemplified by this report.

Notes:

3. http://www.vodafone.com/content/dam/sustainability/pdfs/vodafone_tax_ risk_management_strategy.pdf.

100 Vodafone Group Plc Sustainability Report 2014/15

Transformational solutions Environment Operating responsiblyVision and approach

Vodafone provides a discussion around the OECD’s BEPS project, giving an overview of the initiatives and the likely outcomes. It highlights the group response and input into the initiatives.

It also provides a comparison of its Total Economic Contribution to the prior year. This includes contribution in direct and indirect taxes together with non‑tax contributions, capital investment and direct employment.

35December 2015

Source: 1. Vodafone Group plc, Sustainability Report 2014/15 – pages 100 & 104

1.

Tax and our total contribution to public finances – Our contribution, country by country

This data is intended to provide a broader insight into Vodafone’s significant economic contribution to the societies in which we operate. We have no view on the merits of direct versus indirect taxation, nor on the distinction between the revenues that flow to governments from taxation versus those obtained through other means, such as spectrum fees. Governments – not companies – determine the rules.

The figures set out in the table below will vary widely from country to country and from year to year as a result of local differences between, and annual movements in, factors such

as levels of profit and capital investment. There are also wide variations in local taxation regimes and other government revenue-raising mechanisms, many of which change from year to year. For example, non-taxation-based revenues will typically be very high in a year in which a government benefits from the proceeds of a spectrum auction (as happened in the UK and Netherlands in 2012/13) but much lower in a year where no such auction takes place. It does not make sense, therefore to try and compare the amount of tax or investment made in one country to another, given the factors described above.

Total Economic Contribution – country by country

Direct revenue contribution: taxation

Direct revenue contribution: other non-tax

Indirect revenue contribution

Capital investment

Direct employment6

FY 13/14

£m

FY 12/13

£m

FY 13/14

£m

FY 12/13

£m

FY 13/14

£m

FY 12/13

£m

FY 13/14

£m

FY 12/13

£mFY

13/14FY

12/13

Europe

Albania 5 4 1 1 14 16 25 20 399 420

Czech Republic 10 25 106 9 50 66 67 69 2,040 2,517

Germany 336 106 – – 1,049 1,068 1,483 1,246 14,187 11,031

Greece 14 25 7 6 169 178 70 66 1,726 2,002

Hungary 14 43 3 61 92 70 45 52 2,616 2,351

Ireland 79 24 – 149 71 92 127 102 1,084 1,115

Italy 520 425 – 12 976 903 963 579 6,977 7,553

Malta 41 37 3 2 9 9 12 26 312 316

Netherlands 82 65 – 1,124 195 233 226 219 3,637 3,467

Portugal 47 65 7 7 115 133 155 129 1,426 1,484

Romania7 25 28 149 195 79 91 80 79 3,232 3,308

Spain 91 172 73 255 288 314 505 367 3,567 4,239

UK 355 275 24 825 630 776 1,310 1,076 12,979 13,479

Europe Total 1,619 1,294 372 2,646 3,738 3,949 5,066 4,030 54,181 53,282

Continued

104 Vodafone Group Plc Sustainability Report 2014/15

Transformational solutions Environment Operating responsiblyVision and approach


3. Extractives

37December 2015

Many of the London‑listed extractive companies (notably the mining companies) manage their central functions in the UK, with substantial operations overseas in the territories where the natural resources are located.

Extractive companies have been central to the advances made in tax transparency over recent years through exposure to the EITI, EU and US country‑by‑country reporting initiatives (see page 9 for further details).

Mining companies, in particular, have become increasingly open about their tax strategy and governance procedures, and how they manage the risk of operating in territories with developing tax regimes.

Some explain the impact of sector specific taxes on the effective tax rate by providing additional information or calculations showing necessary adjustments.

Even before disclosure becomes mandatory, companies in this sector have opted to report taxes paid by country, region and by project.



3. Extractives

riotinto.com 5

Taxes paid in 2014

3 Our tax strategy and governanceIn support of our overall business strategy and objectives, Rio Tinto pursues a tax strategy that is principled, transparent and sustainable in the long term. The Group has established principles governing its tax strategy which have been reviewed and approved by the board of directors. These remain unchanged from previous years and include the following key points:

• A tax strategy that is aligned with our business strategy and conforms with our global code of business conduct, “The Way We Work”.

• Commitment to ensure full compliance with all statutory obligations, and full disclosure to tax authorities.

• Maintenance of documented policies and procedures in relation to tax risk management and completion of thorough risk assessments before entering into any tax planning strategy.

• Sustaining good relations with tax authorities, and actively considering the implications of tax planning for the Group’s wider corporate reputation.

• Management of tax affairs in a pro-active manner that seeks to maximise shareholder value, while operating in accordance with the law.

Within this governance framework, the conduct of the Group’s tax affairs and the management of tax risk are delegated to a global team of tax professionals. Management certifies our adherence to these principles to the Rio Tinto board of directors on an annual basis. The suitability of the tax strategy and principles was reviewed in 2014.

There has been increased public and press interest in the use of

“tax havens” by multinational companies in recent years. There are sound commercial reasons for a multinational group to use companies located in territories that offer a stable government and a clear legal and regulatory framework. Such territories may also offer low tax rates. A neutral tax territory is often required for joint ventures between companies that are headquartered in different countries.

Rio Tinto controls 594 subsidiaries of which 20 are located in 9 countries which might be considered to be “tax havens”. Of these 20 subsidiaries, 2 are inactive. The remainder are subject to the UK or Australia’s international tax rules or other similar international tax rules. The activities of these entities are fully disclosed to all relevant tax authorities. The Group regularly reviews the activities of all entities to ensure compliance with all tax requirements and other regulations.

In accordance with our tax strategy, all transfers of goods and services between companies within the Group are conducted on an arm’s length basis. The pricing of such transactions between Group companies is based on fair market terms and reflects the commercial nature of the transactions.

Diavik Diamond Mine

Rio Tinto pursues a tax strategy that is principled, transparent and sustainable in the long term

Rio Tinto locates certain of its activities in the areas of marketing, procurement and freight close to external customers, suppliers and a relevant skills base, rather than at the site of the mine or operating site. Centralising activities also delivers benefits in the form of economies of scale and skill.

Our Singapore Commercial Centre centralises commercial best practice across product groups and other corporate functions such as legal and procurement. This includes centres of excellence for value-in-use analysis, pricing and contracting strategies, all with a focus on managing risk and capturing value through all market conditions. These efforts maximise the value from our business and differentiate us from our peers.

Marketing, procurement, freight, debt finance, management services and other similar services provided to other Group companies (related party transactions) are charged at an arm’s length price in accordance with relevant international tax principles and are subject to review and audit by the relevant tax authorities.

Where required the tax returns contain schedules that provide details of related party transactions, and we provide the tax authorities with all necessary information to determine whether to make further enquiries on audit.

riotinto.com 5

Taxes paid in 2014












Diavik Diamond Mine






riotinto.com 5

Taxes paid in 2014












Diavik Diamond Mine






riotinto.com 5

Taxes paid in 2014












Diavik Diamond Mine






riotinto.com 5

Taxes paid in 2014












Diavik Diamond Mine






riotinto.com 5

Taxes paid in 2014












Diavik Diamond Mine






1.

Rio Tinto includes a full‑page discussion around its approach to tax and governance in its standalone Taxes Paid report. It sets out the tax principles, which are aligned with the business, and includes further details around certain issues such as tax havens and transfer pricing.

39December 2015

Source: 1. Rio Tinto, Taxes paid in 2014 – page 52. Polymetal International plc, Annual Report 2014 – page 63

Risks and risk management

Residual risk level ■ High ■ Medium ■ Low Residual risk level ■ High ■ Medium ■ Low

Risk category Risk description and potential effect Risk response

1. Market risk

Gold and silver price volatility may result in material and adverse movements in the Company’s operating results, revenues and cash flows.

The Company has developed and implemented plans to ensure consistent cash flow generation at operating mines, including:

• redistribution of ore feedstock among deposits to achieve better cost profile due to better grade profile, better logistics or less expensive mining methods;

• deferring the start of production while continuing ore stacking to achieve better cost profiles due to positive scaling effects;

• managing the volume of third-party ore purchases;

• staffing level review and hiring freeze;

• asset-level cost-cutting.

Reserve and resource prices, as well as cut-off grades, are adjusted at least annually to reflect the prevailing commodity price levels. Short-, medium-, and long-term life-of-mine plans are adjusted as appropriate.

Stress testing for conservative price assumptions is performed to ensure resilience of the operating mines in a stress scenario and continued value creation. Contingency action plans were developed to address performance in a stress scenario.

Currently the Company does not hedge its commodity price exposure as its strategy is to offer stakeholders full exposure to potential gold and silver price upside potential.

2.1 Production and processing risks – mining plans

The risk of failure to meet the planned production programme objectives. Failure to meet production targets may adversely affect operating performance and financial results of the Group. The risk of lower than expected metal grade or dilution is caused by complex mining and geological conditions, mainly at underground mines. Recoveries at the Group’s processing plants may not reach planned levels due to the complex technological properties of ore processed.

Annual, quarterly and monthly production budgeting and subsequent monthly control against budget is designed to mitigate the risk. The effectiveness and efficiency of the production process is ensured by the Group engineering team’s senior management. An approved production programme includes increased volume of operational prospecting works, such as in-fill drilling and grade control sampling.

To mitigate the risk the Group invests considerable amounts in ore quality assessment procedures and seeks to control ore quality by formation of ore stacks with the required characteristics.

2.2 Production and processing risks – production process supply by resources required: raw materials, equipment, etc.

The Group’s production activity depends heavily on the effectiveness of supply chains. These might be negatively affected by complex logistics to remote locations and delays in construction and delivery of purchased mining and processing equipment or spare parts.

The Group has implemented and constantly improves the supply chain system to closely link the production demand of resources with inventory levels, optimise the number of order placements and ensure the in-time inventory and equipment delivery to production sites.

2.3 Production and processing risks – production process staffing

Failure to retain key employees or to recruit new staff mainly at the Group’s mining and processing facilities may lead to increased staff costs, interruptions to existing operations and delays in new projects.

Lack of skilled and knowledgeable staff at remote locations may occur due to extreme weather conditions.

A working conditions improvement programme is in place.

Remuneration policies are designed to incentivise, motivate and retain key employees.

There is an increased focus on health and safety – refer to page 45 of this report. A positive corporate culture is actively promoted within the Group.

2.4 Production and processing risks – reliance on contractors

Risk of underperformance against production plan, exceeding available resources: budget overspending, delayed results.

Contractors’ performance control system is designed, implemented and applied.

Risk category Risk description and potential effect Risk response

3. Tax risks

Due to frequent changes in tax legislation in Russia and Kazakhstan, lack of established practices in tax law means that additional costs such as taxes or penalties may occur.

The taxation risk level correlates with the legal and political risks levels.

The Company’s policy is to comply fully with the requirements of the applicable tax laws, providing adequate controls over tax accounting and tax reporting, and to actively monitor the ongoing changes to the tax legislation in its countries of operation.

Given the prevailing practice accepted by arbitration courts when deciding on certain cases in tax disputes in 2013 and 2014, as well as particular outcomes of tax disputes involving Kazakh and Russian subsidiaries of the Group, the tax risk is assessed as ‘High’.

The consolidated financial statements reflect provisions booked in connection with the Company’s evaluation of tax risks.

To date, the Company is not aware of any significant outstanding tax claims, which could lead to additional taxes accrued in the future (except for amounts already booked or disclosed in the Group’s financial statements).

A new anti-offshore law has been enacted in Russia from 1 January 2015. The law introduces material changes into the taxation procedures for controlled foreign companies and establishes new criteria for beneficial ownership of income and tax residency in Russia. As all operating entities of the Group are domiciled in Russia and Kazakhstan, Polymetal generates all of its revenues and profits, and pays all related taxes in these countries. Therefore the Company intends to comply with the new requirements in full and does not expect any material impact on the total tax expense of the Group from the new law.

4. Exploration risks

Exploration and development are time- and capital-intensive activities and may involve high degrees of risk but are necessary for the future growth of the business. Failure to discover new reserves of sufficient magnitude could adversely affect the Company’s future performance.

Risk and uncertainty are inherent for exploration and development activities.

The Group invests considerable amounts in focused exploration projects to obtain sufficient information about the quantity and quality of new reserves and to estimate expected cash flows. The Group’s team of geologists and engineering specialists has a strong track record of successful greenfield and brownfield exploration leading to subsequent development of exploration fields into commercial production.

5. Construction and development risk

Failure to achieve target returns from the major capital expenditure projects, such as building new mines and processing facilities or production capacity increase/refurbishment at existing mines, as a result of failure to meet project delivery timeline and budgets. This can adversely affect the Group’s financial results and cash flows.

The Company implements global best practices in project management. The Group’s engineering team is responsible for the oversight of capital expenditure projects, including project support, coordination of service organisations, contractors, constructors and cooperation with regulatory bodies.

Significant parts of exploration and development projects are performed by the Group in-house by Polymetal Engineering, a subsidiary company with significant expertise and track record of designing and commissioning mines and processing plants.

The methods of construction risk management are constantly improved including by the employment of world-class consultants with recognised international experience.

6. Logistics and supply chain risk

The Company operates in remote locations that require complex transportation of material volumes of ore and gold/silver concentrates, most of which is performed by third party contractors. Production targets may not be reached if any element of the logistics chain is disrupted.

To mitigate the logistics risk, the Group invests considerable amounts into construction and maintenance of permanent and temporary winter roads at exploration and production sites. The Group exercises effective control over the whole logistics chain, including selection and operation of contractors.

continued

Strategic report Governance Financial statements Appendices

62 Annual Report 2014 Polymetal International plc Annual Report 2014 Polymetal International plc 63

2.

Polymetal describes the tax risks related to the instability of the tax systems in its main countries of operation. It provides detail of how it responds to these risks, which includes appropriate controls and provisions in the financial statements.



3. Extractives

Anglo American plc Annual Report 2014 127


8. INCOME TAX EXPENSE continuedb) Factors affecting tax charge for the yearThe effective tax rate for the year of (488.4)% (2013: 74.9%) is lower (2013: higher) than the applicable weighted average statutory rate of corporation tax in the United Kingdom of 21.5% (2013: 23.25%). The reconciling items, excluding the impact of associates and joint ventures, are:

US$ million 2014 2013(Loss)/profit before tax (259) 1,700 Less: share of net income from associates and joint ventures (208) (168) (Loss)/profit before tax (excluding associates and joint ventures) (467) 1,532 Tax on (loss)/profit (excluding associates and joint ventures) calculated at United Kingdom corporation tax rate of 21.5% (2013: 23.25%)

(100) 356

Tax effects of:Items non-taxable/deductible for tax purposesExploration expenditure 18 22 Non-taxable net foreign exchange gains (12) (16) Non-taxable net interest income (8) (9) Other non-deductible expenses 72 110 Other non-taxable income (138) (105)

Temporary difference adjustmentsCurrent year losses not recognised 79 25 Recognition of losses not previously recognised (143) (6) Utilisation of losses not previously recognised (13) (8)Write-off of losses previously recognised 65 29Adjustment in deferred tax due to change in tax rate 106 14Other temporary differences 95 (28)

Special items and remeasurements 1,014 427

Other adjustmentsSecondary tax on companies and dividend withholding taxes 193 242 Effect of differences between local and United Kingdom tax rates 106 173 Prior year adjustments to current tax (68) 31 Other adjustments (1) 17 Income tax expense 1,265 1,274

IAS 1 requires income from associates and joint ventures to be presented net of tax on the face of the income statement. Associates’ and joint ventures’ tax is therefore not included within the Group’s income tax expense. Associates’ and joint ventures’ tax included within ‘Share of net income from associates and joint ventures’ for the year ended 31 December 2014 is $159 million (2013: $155 million). Excluding special items and remeasurements this becomes $113 million (2013: $158 million).

The effective tax rate before special items and remeasurements including attributable share of associates’ and joint ventures’ tax for the year ended 31 December 2014 was 29.8%. This is lower than the equivalent effective tax rate of 32.0% for the year ended 31 December 2013 due to the impact of certain prior year adjustments, the remeasurement of withholding tax provisions across the Group and the recognition of previously unrecognised losses. In future periods it is expected that the effective tax rate will remain above the United Kingdom statutory tax rate.

c) Tax amounts included in other comprehensive incomeAn analysis of tax by individual item presented in the Consolidated statement of comprehensive income is presented below:

US$ million 2014 2013Tax credit/(charge) on items recognised directly in equity that will not be reclassified to the income statementRemeasurement of net retirement benefit obligation 9 (37)

Tax credit/(charge) on items recognised directly in equity that may subsequently be reclassified to the income statementNet exchange differences on translation of foreign operations (15) 156 Net loss on revaluation of available for sale investments 26 13 Net loss on cash flow hedges 4 4

24 136Tax credit on items transferred from equityTransferred to income statement: disposal of available for sale investments – 12Transferred to initial carrying amount of hedged items: cash flow hedges 1 –

1 12

d) Tax amounts recognised directly in equityNo significant amounts of tax have been charged directly to equity in 2014 (2013: a deferred tax credit of $106 million and current tax charge of $106 million were recognised directly in equity in relation to the disposal of a 24.5% interest in Anglo American Sur SA in 2011).

FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION NOTES TO THE FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED INCOME STATEMENT

1.

2.

Anglo American provides clear headings in the effective to statutory tax rate reconciliation, differentiating between items not taxable or deductible, temporary differences, special items and other adjustments.

Centrica separates the tax impacts of exceptional items and certain re‑measurements for both current and prior year.

Centrica plc Annual Report and Accounts 2014

112FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

8. Net finance cost

Financing costs mainly comprise interest on bonds, bank debt and commercial paper, the results of hedging activities used to manage foreign exchange and interest rate movements on the Group’s borrowings, and notional interest arising on discounting of decommissioning provisions. An element of financing cost is capitalised on qualifying projects.

Investment income predominantly includes interest received on short-term investments in money market funds, bank deposits, government bonds and notional interest on pensions.

2014 2013

Year ended 31 December

Financing costs

£m

Investmentincome

£m Total

£m

Financing costs

£m

Investmentincome

£m Total

£m

Cost of servicing net debt Interest income – 46 46 – 43 43Interest cost on bonds, bank loans and overdrafts (i) (257) – (257) (252) – (252)Interest cost on finance leases (16) – (16) (17) – (17)

(273) 46 (227) (269) 43 (226)Net losses on revaluation (ii) (14) – (14) (6) – (6)Notional interest arising from discounting and other interest (81) 6 (75) (73) 11 (62) (368) 52 (316) (348) 54 (294)Capitalised borrowing costs (iii) 50 – 50 51 – 51(Cost)/income (318) 52 (266) (297) 54 (243)(i) During 2014 the Group increased its outstanding bond debt principal by $200 million, ¥30 billion, €100 million and £51 million, and decreased it by $100 million and £315 million. See note 24(d). (ii) Includes gains and losses on fair value hedges, movements in fair value of other derivatives primarily used to hedge foreign exchange exposure associated with inter-company loans, and foreign

currency gains and losses on the translation of inter-company loans. (iii) Borrowing costs have been capitalised using an average rate of 4.0% (2013: 4.6%). Capitalised interest has attracted tax deductions totalling £13 million (2013: £14 million), with deferred tax

liabilities being set up for the same amounts.

9. Taxation

The taxation note details the different tax charges and rates, including current and deferred tax arising in the Group. The current tax chargeis the tax payable on this year’s taxable profits. This tax charge excludes taxation on the Group’s share of results of joint ventures and associates. Deferred tax represents the tax on differences between the accounting carrying values of assets and liabilities and their tax bases. These differences are temporary and are expected to unwind in the future.

(a) Analysis of tax charge

2014 2013


Businessperformance

£m

Exceptional itemsand certain

re-measurements£m

Results forthe year

£m

Business

performance £m


re-measurements£m

Results forthe year

£m

Current tax UK corporation tax (186) – (186) (346) (1) (347)UK petroleum revenue tax (53) – (53) (210) – (210)Non-UK tax (i) (234) (130) (364) (504) – (504)Adjustments in respect of prior years – UK 86 – 86 140 – 140Adjustments in respect of prior years – non-UK 2 – 2 28 – 28Total current tax (385) (130) (515) (892) (1) (893)Deferred tax Origination and reversal of temporary differences – UK 109 538 647 (85) 370 285UK petroleum revenue tax (7) 8 1 37 – 37Origination and reversal of temporary differences – non-UK (6) 374 368

55 (121) (66)

Change in tax rates (2) (17) (19) 64 (5) 59Adjustments in respect of prior years – UK (72) – (72) (94) – (94)Adjustments in respect of prior years – non-UK (12) – (12) (27) – (27)Total deferred tax 10 903 913 (50) 244 194Total tax on (loss)/profit (ii) (375) 773 398 (942) 243 (699)(i) Non-UK tax on exceptional items and certain re-measurements arose on the gains on disposal of the Texas gas-fired power stations and Ontario home services business in 2014. (ii) Total tax on (loss)/profit excludes taxation on the Group’s share of profits of joint ventures and associates.

NOTES TO THE FINANCIAL STATEMENTS

9. Taxation Tax on items taken directly to equity is disclosed in note S4. The Group earns the majority of its profits in the UK. Most activities in the UK are subject to the standard rate for UK corporation tax, which from 1 April 2014 was 21% (2013: 23%). Upstream oil and gas production activities are taxed at a UK corporation tax rate of 30% (2013: 30%) plus a supplementary charge of 32% (2013: 32%) to give an overall rate of 62% (2013: 62%). In addition, certain upstream assets in the UK attract petroleum revenue tax (PRT) at 50% (2013: 50%) which is deductible against corporation tax, giving an overall effective rate of 81% (2013: 81%). Norwegian upstream profits are taxed at the standard rate of 27% (2013: 28%) plus a special tax of 51% (2013: 50%) resulting in an aggregate tax rate of 78%. Taxation for other jurisdictions is calculated at the rates prevailing in those respective jurisdictions.

On 2 July 2013, the UK Government substantively enacted Finance Act 2013 which included a reduction in the main UK corporation tax rate to 20% from 1 April 2015. At 31 December 2014, the relevant UK deferred tax assets and liabilities included in these Financial Statements were based on the reduced rate.

On 3 December 2014, the UK Government announced a 2% reduction to the rate of supplementary charge from 32% to 30% effective 1 January 2015. This reduction had not been substantively enacted at 31 December 2014 and so these financial statements have not applied the reduced rate. The effect of the announced reduction would be to decrease net deferred tax liabilities by £19 million.

(b) Factors affecting the tax charge The differences between the total tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax are as follows:

2014 2013


Businessperformance

£m


re-measurements£m

Results forthe year

£m

Business

performance £m


re-measurements£m

Results forthe year

£m

(Loss)/profit before tax 1,302 (2,705) (1,403) 2,275 (626) 1,649Less: share of profits in joint ventures and associates, net of interest and taxation (106) (26) (132) (146) (25) (171)Group (loss)/profit before tax 1,196 (2,731) (1,535) 2,129 (651) 1,478Tax on (loss)/profit at standard UK corporation tax rate of 21.5% (2013: 23.25%) (257) 587 330 (495) 151 (344)Effects of:

Net expenses not deductible for tax purposes (27) (219) (246) (7) (61) (68)Additional charges applicable to upstream profits (59) 299 240 (357) 241 (116)UK petroleum revenue tax rates (23) 3 (20) (131) – (131)Non-UK tax rates (i) (14) 124 110 (41) (53) (94)Movement in unrecognised deferred tax assets 3 (4) (1) (22) (30) (52)Changes to tax rates (2) (17) (19) 64 (5) 59Adjustments in respect of prior years 4 – 4 47 – 47

Taxation on (loss)/profit for the year (375) 773 398 (942) 243 (699)(i) Excludes additional non-UK tax applicable to upstream profits.

(c) Factors that may affect future tax charges The Group’s effective tax rates are impacted by changes to the mix of activities and production across the territories in which it operates.

The Group’s UK profits earned away from gas and oil production will benefit from reduced rates of corporation tax in 2015 and beyond (20% from 1 April 2015). UK gas and oil production profits will benefit from a 2% reduction to the supplementary charge from 1 January 2015.

Profits from oil and gas production in the UK continue to be taxed at rates above the UK statutory rate and PRT will continue to be applied to certain upstream profits. The PRT borne is expected to decrease as production activity in the relevant fields declines over time.

Income earned in territories outside the UK, notably in the US and Norway, is generally subject to higher effective rates of tax than the current UK statutory rate.

In the medium term, the Group’s effective tax rate is expected to remain significantly above the UK statutory rate.

41881_Centrica_AR2014_p92-186_Accounts.indd 112 27/02/2015 16:44

41December 2015

Source: 1. Anglo American plc, Annual Report 2014 – page 1272. Centrica plc, Annual Report and Accounts 2014 – page 1123. KAZ Minerals, Annual Report and Accounts 2014 – page 49

www.kazminerals.com 49

DIR

ECTO

RS’ R

EPORT

Other items outside of EBITDA (excluding special items) from continuing operationsDepreciation, depletion and amortisationThe Group’s depreciation, depletion and amortisation charge from continuing operations for 2014 of $42 million is $15 million below the charge in the prior year, principally due to the impact of the tenge devaluation.

METThe MET charge for the East Region operations of $86 million for 2014 was below the $94 million recognised in 2013, principally reflecting lower commodity prices.

Net finance costsNet finance costs, which include finance costs incurred on borrowings, net foreign exchange losses and interest on the employee benefits obligation, have increased significantly from $53 million in 2013 to $263 million in 2014, principally due to the impact of the tenge devaluation.

On 11 February 2014, the National Bank of Kazakhstan announced it would seek to support the tenge at around 185 KZT to the US dollar, with the tenge swiftly devaluing to trade at this level. The KZT/$ exchange rate at 31 December 2014 was KZT 182.35 compared to KZT 153.61 at 31 December 2013, a 19% devaluation. The average KZT/$ exchange rate for 2014 was KZT 179.19 compared to KZT 152.13 in 2013, a change of 18%.

The net exchange losses of $235 million were higher than the $7 million in 2013 largely as a result of the tenge devaluation. Exchange losses of $361 million arose mainly from the translation of tenge denominated intercompany monetary assets and liabilities, while US dollar denominated monetary assets and liabilities in Kazakhstan, principally accounts receivable and cash balances, gave rise to exchange gains of $126 million. Of this net exchange loss, $181 million arising from the devaluation at 11 February 2014 is treated as a special item and is excluded from Underlying Profit from continuing operations. The remaining net exchange losses arose largely from the depreciation of the Kyrgyz som on the translation of intercompany monetary liabilities relating to the financing of the Bozymchak project. These losses are largely offset by corresponding translation gains on consolidation, which are recognised directly in equity.

The interest costs incurred on borrowings decreased to $35 million from $51 million in 2013, principally due to lower interest charges in the year arising from a reduced weighted average interest rate and a lower average level of borrowings during 2014, being partially offset by $10 million of pre-export finance facility unamortised fees being expensed following the Group’s amendment to the pre-export finance facility in October 2014. Interest charges capitalised to the Bozshakol, Aktogay and Bozymchak projects amounted to $124 million (2013: $126 million).

Other finance costs included $2 million (2013: $2 million) and $1 million (2013: $2 million) of unwinding of the discount on the Group’s employee benefit obligations and long-term provisions, respectively.

In addition, the Group earned $10 million of interest income on cash deposits compared to $9 million in 2013.

TaxationThe table below shows the Group’s effective tax rate from continuing operations as well as the all-in effective tax rate, which takes into account the impact of MET and removes the effect of special items and non-recurring items on the Group’s tax charge.

$ million (unless otherwise stated) 2014 2013

(Loss)/profit before taxation from continuing operations (169) 138Add: MET 86 94Add: special items within operating profit 132 16Add: net foreign exchange loss arising on the devaluation of the tenge 181 –Adjusted profit before taxation from continuing operations 230 248Income tax expense 65 48Add: MET 86 94Add: deferred tax asset on additional disability benefits obligation related to previously insured employees – 1Add: recognition of a deferred tax asset resulting from impairment charges 1 3Less: tax effect on foreign exchange gain arising on the devaluation of the tenge (8) –Adjusted tax expense from continuing operations 144 146Effective tax rate (%) (38) 35All-in effective tax rate1 (%) 63 59

1 The all-in effective tax rate is calculated as the income tax expense plus MET less the tax effect of special items and other non-recurring items, divided by profit before taxation which is adjusted for MET, special items and other non-recurring items. The all-in effective tax rate is considered to be a more representative tax rate on the recurring profits of the Group.

Effective tax rate Despite making a loss before taxation from continuing operations of $169 million, the Group has incurred a tax charge of $65 million, principally as a result of the net foreign exchange losses arising from the tenge devaluation in February 2014 of $181 million, which includes $223 million of foreign exchange losses not deductible for tax purposes. The tax impact of the non-deductible exchange loss amounted to $48 million. In addition, the tax impact of the Bozymchak impairments of $13 million also had upward pressure on the effective tax rate.

As a result, the effective tax rate from continuing operations was (38)% compared to 35% in 2013. The restatement of the Group’s income statement following the reclassification of the Disposal Assets as a discontinued operation has led to a restatement of the effective tax rate for 2013. Prior to this reclassification the prior year effective tax rate was (19)%.

3.

KAZ Minerals shows an ‘all‑in’ effective tax rate, helpfully explaining the impact of the Mineral Extraction Tax (MET) and removing the effect of special and non‑recurring items.



3. Extractives

SOCIO-ECONOMIC DEVELOPMENT IN ACTION: SPOTLIGHT ON SOUTH AFRICA

(1) Data based on economic impact analysis conducted by PwC and Genesis Analytics on behalf of Anglo American plc in 2013.

12Anglo American plc Tax and Economic Contribution Report 2014

SOCIO-ECONOMIC DEVELOPMENT IN ACTION: SPOTLIGHT ON SOUTH AFRICA

Anglo American is a cornerstone of the South African economy, representing 5% of total GDP in 2012. Considering the direct, indirect (procurement) and induced (salaries) impacts, Anglo American’s total gross value added (ZAR150 billion) exceeds the direct gross value added of South Africa’s agricultural sector (ZAR73 billion), utilities sector (ZAR70 billion), and construction sector (ZAR113 billion). Of the economic value of mining operations in South Africa (including Anglo American’s South Africa operations), approximately 71-89% is retained in and captured by South Africa. The infographic above summarises some of the channels through which our operations contribute to the development of South Africa.

In addition, Anglo American offers competitive wages relative to other sectors of the economy. Minimum monthly remuneration packages for entry-level mine workers exceed minimum agreed salaries for entry-level employees in a range of sectors. For example, Coal South Africa’s underground mine workers, on an entry level minimum remuneration package, earn c. ZAR8,000/month more than the sector minimum for an entry level civil engineer.(1)

Our contribution in South Africa 2014

NET INFLOW TO SOUTH AFRICA

ZAR108,695mNet sales revenue from all exported product sales.

ANGLO AMERICAN

PURCHASE OF GOODS AND SERVICES IN SOUTH AFRICA

ZAR51,982mThe company requires a variety of utilities, materials and services to operate. The bulk of these are purchased from within South Africa.

CAPITAL REINVESTED IN THE BUSINESS

ZAR18,640mThe amount reinvested in the company in order for the business to be sustainable, grow and achieve future profit.

COMMUNITY DEVELOPMENT PROJECTS

ZAR792mThe company invests in the community. Social upliftment takes place through investments in healthcare, education, skills training and infrastructure development.

TAX TO SOUTH AFRICAN GOVERNMENT

ZAR13,882m• Direct and indirect tax,

including royalties, paid to SA government

• Indirect tax to Government deducted from salaries and wages and paid directly to Government by the company.

SALARIES AND WAGES

ZAR26,615mSalaries, wages and other benefits, including pensions, paid to employees and contractors. This provides them with disposable income to spend and create wealth in their communities.

Anglo American gives its views on how tax legislation should be designed and implemented in order to be effective for those operating in the mining industry.

It also provides a helpful diagram showing the contribution made by the group in South Africa over the year. Taxes paid to the South African government are quantified as part of the contribution alongside items such as salaries paid and capital reinvested.

1.PROACTIVE ENGAGEMENT

The Anglo American tax team engages proactively with regulators on the design and implementation of tax policy. Mining is becoming increasingly complex and uncertain amid, inter alia, economic headwinds, regulatory uncertainty, growing capital intensity and declining ore grades. Economic policy (including tax) decisions by governments have a significant impact on our investment decisions and profitability. Our aim is to work with governments to create policy environments that support long term investment in mining, which in turn sustains jobs, stimulates economic growth and extends the future tax base.

We engage directly with policymakers when proposed tax reforms are of specific relevance to Anglo American. The mining industry takes a collaborative approach, via representative bodies such as the International Council on Mining and Metals and the Chamber of Mines of South Africa, or its equivalent in the many jurisdictions in which we operate, when reforms are of common interest.

In 2014, significant reforms were made, or proposed, to tax regimes in some of our major host jurisdictions. In Chile, reforms were made as part of wider changes to social policy. Tax policy in South Africa has been subject to broad review by the Davis Tax Committee, whose terms of reference requires a focus on “…the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability…”. Anglo American has proactively engaged with the Committee and fully supports its recognition of the need to consider tax policy as part of a wider social and economic framework.

TAX GOVERNANCE

Anglo American’s tax professionals are committed to acting in accordance with our Business Principles and tax strategy; internal tax policies ensure that the strategy is embedded in the way we do business. Our tax professionals also strive to maintain a long term, open and constructive relationship with tax authorities, governments or other relevant stakeholders.

We actively engage with a variety of stakeholders on a range of issues relating to tax, including industry bodies that help bring commercial understanding and experience into debates about tax policy and governance.

Tax matters are regularly presented to our Board and Audit Committees, who take a particular interest in the extent to which our approach to tax meets our commitments to stakeholders and our ambition of good tax governance. In addition, our tax affairs are regularly scrutinised by our external auditors and by tax authorities as part of the normal course of local tax-compliance procedures.

DESIGN OF AN EFFECTIVE FISCAL REGIME FOR THE MINING INDUSTRYAnglo American operates in a variety of jurisdictions which have different fiscal regimes applicable to the mining industry. The nature of any fiscal regime, and its stability of application, is a significant factor in attracting investment as well as ensuring the long term viable operation of existing projects.

In our experience there are a number of key factors which should be taken into account in design of an effective fiscal regime for the mining industry.

TAX POLICY AND ADMINISTRATION

• Tax should be imposed under generally applicable laws passed by parliament.

• Tax policy and legislation should be stable, competitive and predictable.

• Any law changes should be prospective, not retrospective, taking into account the integrity and coherence of the entire tax system.

• Tax administration should be consistent and transparent, aligned with government policy.

• Governments should be open to constructive dialogue between tax administrators, policymakers and taxpayers.

BASIS OF TAXATION • Tax should be levied on a fair and equitable basis, enabling risk and reward to be shared between the investor and government, supporting investment and job and wealth creation.

• Tax should generally be levied on profits so that appropriate tax revenues can be raised at the appropriate time.

• Detailed tax rules should take account of the specific characteristics of the mining industry including relief for exploration, infrastructure expenditure and appropriate reliefs for capital expenditure.

• Any mining specific taxation should typically be in the form of a mining royalty or mining tax based on profit rather than revenues.

05Anglo American plc Tax and Economic Contribution Report 2014

TAX

43December 2015

Source: 1. Anglo American plc, Tax and Economic Contribution Report 2014 – pages 5 & 122. BHP Billiton, Sustainability Report 2015 – page 633. Tullow Oil plc, 2014 Corporate Responsibility Report – pages 6 & 7

Performance data – Governance

Payments to governments on a country-by-country basis (1)

Country

Payments to governments

US$ million (2)Taxes collected

US$ million (3) Asset/Office

Australia 5,245 1,053 Global HeadquartersPetroleum – Australia Production Unit; Australia Joint Interest UnitCopper – Olympic DamIron Ore – Western Australia Iron OreCoal – New South Wales Energy Coal, BHP Billiton Mitsubishi Alliance, BHP Billiton Mitsui Coal, Coal Head OfficeGroup and unallocated – Nickel West

Chile 1,126 143 Copper – Escondida, Pampa Norte, Copper Head OfficeUnited States 644 182 Petroleum and Potash – Onshore US, Gulf of Mexico Production Unit,

Gulf of Mexico Joint Interest Unit, Petroleum Head OfficeCoal – New Mexico Coal

Algeria 140 <1 Petroleum and Potash – Algeria Joint Interest UnitTrinidad and Tobago

43 3 Petroleum and Potash – Trinidad and Tobago Production Unit

United Kingdom (41) 17 Petroleum and Potash – UK Production Unit; Corporate OfficeCanada 80 22 Petroleum and Potash – Potash Head OfficePakistan 28 2 Petroleum and Potash – Pakistan Production UnitBrazil 18 <1 Iron Ore – SamarcoPeru 9 1 Copper – AntaminaSingapore 6 <1 Marketing Head Office Switzerland 3 <1 Marketing Office

Indonesia 1 1 Coal – IndoMet Coal Project

Other 8 2

Total (4) 7,310 1,426 Demerged operations (5)

478 265

(1) The Group claims refunds of transaction taxes (for example, GST/VAT and Fuel Tax) paid to suppliers for in-country purchases of goods, services and eligible fuel, and also collects GST/VAT in respect of certain sales to customers as set out in the table. These amounts are not included in payments to governments or taxes collected.

(2) Includes amounts paid/received by BHP Billiton in respect of each of its operations, including joint operations. However, it excludes taxes paid/received by entities, which are accounted for as an equity accounted investment in BHP Billiton’s financial statements such as Antamina, Cerrejón and Samarco.

(3) Taxes collected on behalf of our employees. Includes all payments to governments by BHP Billiton in respect of each of its operations, including joint operations. However, it excludes taxes paid/received by entities, which are accounted for as an equity accounted investment in BHP Billiton’s financial statements such as Antamina, Cerrejón and Samarco. Where the payroll year end date is different to the BHP Billiton’s financial year end date, the most recent annual data has been used.

(4) Excludes demerged South32 assets.(5) Total payments to governments paid/collected by demerged South32 assets.

We have disclosed our payments of taxes and royalties on a project-by-project basis, and payments to state and provincial governments at a subnational level in a stand-alone BHP Billiton Economic contribution and payments to governments Report 2015. The Report is available online at www . bhpbilliton . com.

BHP Billiton Sustainability Report 2015 636 Tullow Oil plc 2014 Corporate Responsibility Report

Overview

OIL & GAS LIFE CYCLE

We want our contribution to the global oil life cycle to bring tangible and sustainable value to the groups that should benefit from our presence.

CREATING VALUE ACROSS THE OIL LIFE CYCLE

CONTRACTUAL LICENCE EXPLORATION & APPRAISAL DEVELOPMENT OF DISCOVERYIn order to explore we must first be granted a licence by the government of the country we wish to invest in. We identify those countries through careful evaluation of geological and non-technical risks. We look for hydrocarbons in regions where we have proven expertise as well as in new, under-explored territories.

We begin work on a Plan of Development (PoD) once we have confirmed that the oil discovery we have made is commercially viable. The PoD involves extensive stakeholder engagement and must consider environmental, social, economic and operational issues. These plans are approved by governments and regulatory authorities and their implementation is carefully monitored.

We collect and interpret seismic and geophysical data to assess potential oil in the ground. We drill an initial well and after a discovery, we drill appraisal wells and potential additional exploration wells to determine the size, quality and extent of the geological play. If there is no oil or it is not commercially viable, the well will be plugged and abandoned.

Social investment projects e.g. improved infrastructure or access to water

Seismic activity, exploration and appraisal wells

Capital intensive period for IOC to develop field

Extensive in-country activity during development phase e.g. Increase in local jobs and suppliers

International oil company (IOC) investment and revenues In-country value

1-5 YEAR PERIOD 2-10 YEAR PERIOD 3-10 YEAR PERIOD

VALU

EIN

VEST

MEN

T

INTERNATIONAL OIL COMPANY INTIAL INVESTMENT

www.tullowoil.com 7

PE

RFO

RM

AN

CE

OVE

RVIE

WS

UP

PLE

ME

NTA

RY IN

FOR

MATIO

N

THE VALUE WE GENERATEWe aim to create sustainable long-term value growth through our operations across the oil life cycle. While our shareholders are always our key focus, we believe it is equally important to create in-country value for a wider group of beneficiaries including employees, governments, local suppliers and communities. This value is not purely focused on financial returns, it also comes from local employment, local sourcing of goods and services and capacity building. We call our approach to achieving this value ‘shared prosperity’ and we aim to ultimately create a positive and lasting contribution to economic and social development in the communities and countries where we operate. This should bring further benefits to our shareholders.

PRODUCTION DE-COMMISSIONINGSuccessful developments should be carried out in the most cost-effective way, without compromising high safety standards, and with regard for the environment and local communities that may be affected by our work. Production can last many decades.

When production ceases, facilities are decommissioned and the location is fully remediated.

Investment to maintain maturing production

Cost effective production provides high-margin cash flow to the IOC. Cash flow for the IOC is dependent on oil price, expenditure and the agreed licence terms

FIRST OIL

This is an indicative life cycle. Timings and values are generalised for illustration only.

3-10 YEAR PERIOD20-50 YEAR PERIOD

Governments’ share over the life of a field will typically amount to >70%

of net revenues

IOC’s share of net revenue after

investment, operating costs and taxes typically

amount to <30%

IN-COUNTRY VALUE CREATION

INTERNATIONAL OIL COMPANY SUBSEQUENT TAKE

Monetry value from production tax and royalties

BHP Billiton quantifies its taxes borne and collected on behalf of governments for each country of operation, including details of the asset or office located in the territories.

Tullow Oil provides a diagram for the life of an oil field, demonstrating the periods when investments are made and those when value is created. The diagram highlights that the majority of taxes are paid at the production stage.

2.

3.


Tax Transparency outside the UK

In this section, we highlight three examples of tax transparency reviews outside the UK. As country‑by‑country reporting requirements are implemented across the globe, more companies are considering how best to communicate their tax affairs. In our last publication we showed examples of individual overseas companies making voluntary tax disclosures. This year, we have highlighted studies around tax transparency in three countries: Spain, Netherlands and South Africa.

Spain

For the second year running, PwC Spain have released a tax transparency review of the country’s largest listed companies, the IBEX35. The review focuses on five key voluntary disclosures: approach to tax, tax governance, detailed tax reconciliation, Total Tax Contribution and geographic reporting.

All five indicators have increased over the last year, with the largest increases in tax governance (29%) and approach to tax (23%).

A modification in the Spanish Companies Act has introduced a list of non‑delegable powers of the Board of Directors of Spanish listed companies regarding tax matters, including, among others: the setting of a tax strategy, the approval of transactions which have tax risks associated with them, and the determination of the company’s risk policies, including tax risks.

45December 2015

Netherlands

In July 2015, the Dutch Association of Investors for Sustainable Development (VBDO) released its ‘Tax Transparency Benchmark 2015’ report, providing findings of its tax transparency review into 64 Dutch listed companies.

PwC The Netherlands has provided VBDO with input and support in this project in a number of areas including the tax transparency benchmarking methodology, tax technical support, a high‑level review of the results and input into the final report.

All companies were reviewed using a public framework of over 30 questions covering tax strategy, risk and controls as well as tax rates and country‑by‑country reporting. An independent jury was appointed to decide a winner out of the ten highest‑scoring companies.

45% of companies published a tax strategy, 45% gave details of Audit Committee oversight over tax and 16% gave information of taxes other than corporate tax.

South Africa

2015 sees the second Building Public Trust awards for tax reporting in South Africa. An award is given for a leader in tax transparency listed on the JSE.

The review uses the PwC Tax Transparency framework, which covers tax strategy & risk management, tax numbers & performance and Total Tax Contribution & the wider impact of tax.

The top performers in the awards were companies in the extractive industries, a dominant sector in South Africa, which follow the Extractive Industries Transparency Initiative.

Building PublicTrust Awards 2014

www.pwc.co.za

Tax is increasingly

becoming a reputational

issue as companies are

being asked to explain their

tax affairs and in the

process expected to be more

transparent, as well as

maintain trust with both

their stakeholders and the

wider public.

Source: 1. PwC Spain, Transparencia en el reporting fiscal y tendencias en las compañías del IBEX 352. VBDO, Tax Transparency Benchmark 20153. http://www.pwc.co.za/en/assets/pdf/building-public-trust-awards.pdf


Recent publications

Tax transparency and country by country reporting BEPS and beyond

October 2015

www.pwc.com/tax

www.pwc.co.uk

Total TaxContribution ofthe UK bankingsector

A publication prepared by PwC for the British Bankers Association

September 2015

Tax Transparency Trends in voluntary tax disclosures

A review of the FTSE100 for 2014 year ends

www.pwc.co.uk/ftse100reporting

May 2015

www.pwc.co.uk/100group

November 2014: There was record participation in the10th Total Tax Contribution survey with 103 companiesproviding data.

The Total Tax Contribution FrameworkA decade of development

September 2015

www.pwc.com/totaltaxcontribution

Paying Taxes 2016

10 years of in depth analysis on tax systems in 189 economies. A look at recent developments and historical trends.

www.pwc.com/payingtaxeswww.pwc.com/totalimpact

By valuing social, environmental, tax and economic impacts, business is now able to compare the total impacts of their strategies and investment choices and manage the trade-offs

Measuring and managing total impact: A new language for business decisions

Total Tax Contribution of UK Financial ServicesSeventh EditionRESEARCH REPORT CITY OF LONDON CORPORATION

www.cityoflondon.gov.uk/economicresearch

Report prepared for the City of London Corporation by PwC

Key contacts:

PwC has a strong network of people who can advise you on how to develop your reporting to best meet the needs of your business, the board and external stakeholders. To discuss reporting insights for your organisation, please speak to your usual contact or one of our team:

Andrew Packman

Tax Transparency T: +44 (0) 1895 522104 E: [email protected]

Janet Kerr

Tax Transparency T: + 44 (0) 20 7804 7134 E: [email protected]

Laetita Lynn

Tax communication strategyT:+44 (0) 20 7212 3761 E: [email protected]

At PwC United Kingdom, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/uk.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

Design Services 28269 (11/15).

Mary Monfries

Tax Policy and ReputationT: +44 (0) 20 7212 7927 E: [email protected]

Neville Howlett

External RelationsT: +44 (0) 20 7212 7964E: [email protected]

Lauren Sparks

Tax TransparencyT: +44 (0) 20 7804 1982E: [email protected]

www.pwc.co.uk/tax/tax‑transparency.jhtml

Documents

Building Public Trust Through Tax Reporting Developing a ... · Foreword 4 Developing a communication plan for tax 6 A review of the FTSE100 for 2014 year ends 7 Tax Transparency