Tax approach

Exxaro believes in sustainable value creation, enabled by carefully considering the relationship between the capitals it uses and affects. These capitals include: natural, social and relationship, manufactured, human, intellectual and financial, and have been integrated into Exxaro's business model and strategy. Exxaro continuously strives to positively contribute to and negate any adverse impacts on these capitals. This ensures sustained success and fosters a more sustainable operating environment for Africa and beyond.

Taxation is an integral part of our business strategy as tax is the natural outflow of each business decision. Our approach to tax is to support and contribute to these sustainable value creation goals by:

• Complying with tax laws as accurately and timeously as possible
• Applying good corporate governance and sound business practices
• Effectively managing our tax risks with continuous assessment and mitigation
• Paying our tax liabilities accurately and on time
• Building relationships of trust and transparency with our stakeholders
• Ensuring that material and complex tax transactions are supported by sound technical opinions
• Ensuring that we maintain documentary evidence of tax filings and tax positions
• Reporting and correcting material inadvertent errors, non-disclosures and failures of controls immediately to regulatory authorities and/or our overseeing function (executive committee and/or audit committee),
• Using opportunities to minimise tax liabilities within the parameters of tax law
• Protecting Exxaro against financial loss and reputational damage

DEALING WITH TAX AUTHORITIES

Exxaro maintains good relationships with the Revenue authority in the jurisdictions in which we operate in. Exxaro applies for rulings where tax legislation is uncertain, and we endeavour to attend to tax information requests and audits from the South African Revenue Service ("SARS") in a comprehensive and timely manner. In the 2021, SARS officers conducted a business review of Exxaro's coal business in which we shared specific requested information, and discussed the future outlook of our coal business.

Over the past four years, we have had challenges in resolving audits of diesel rebate claims. Although diesel rebates fall within the Customs and Excise Act, 1964 (Act 91 of 1964), SARS administers the claims. Significant progress was made in this regard during 2021. We have managed to finalise the audits for Exxaro Coal Proprietary Limited (Exxaro Coal). The Exxaro Coal Mpumalanga Proprietary Limited (Exxaro Coal Mpumalanga) audit for the period ending November 2018 was also finalised in 2021. A second diesel rebate audit of Exxaro Coal Mpumalanga for the subsequent period ending February 2021 will commence in February 2022.

Exxaro has met with the diesel rebate audit team bi-weekly for the past few months to attend to SARS queries and information requests in a timely manner, and to ensure that audits progress within acceptable time periods. Refer below for details of SARS audits during 2021. Unfortunately, audited value-added tax (VAT) refunds were not being paid by SARS and Exxaro had to institute legal action in terms of section11(4) of the Tax Administration Act, 2011 (Act 28 of 2011). SARS was willing to resolve the matter without further legal intervention and although the majority of the outstanding VAT refunds were paid, the parties are still in process of resolving differences and interest to be paid by SARS.

In prior years, we commented on the litigation processes of Mafube Coal Mining Proprietary Limited (Mafube), Exxaro's 50% joint venture (JV) with Thungela Resources Limited (Thungela Resources), regarding additional mineral and petroleum resources royalties assessments by SARS, amounting to R190 million plus penalties of R19 million (Exxaro exposure: R105 million). On 18 December 2020, Mafube filed its Rule 32 statement (detailing grounds for appeal) at the Registrar of the Tax Court and SARS. Mafube is now preparing its discovered documents file. SARS has not submitted its discovered documents file to date. The process is ongoing.

In 2021 SARS has queried the deductibility of Exxaro Coal's stock provisions in terms of section 22(1) of the Income Tax Act as well as losses incurred by Tshikondeni mine for rehabilitation totalling R165 million (tax effect: R46 million). Exxaro is confident that the deductions can be defended in terms of relevant tax law. Exxaro awaits the outcome of the SARS audit. Full provision has been made in the financial results in terms of IFRIC23.

PUBLIC POLICY ADVOCACY

Exxaro participates in local tax reform and the development of effective tax systems through tax workgroups of the Minerals Council South Africa. Exxaro's tax manager is also an executive team member of the South African Institute of Taxation mining group. During the development of the carbon tax and mining royalties tax legislation, Exxaro actively participated in industry working groups and responded to proposed draft legislation. Exxaro will continue to play an active role in the industry and be involved in the relevant discussions as they arise in the future.

TAX HAVENS

Tax havens are countries or jurisdictions offering certain tax benefits such as lower tax rates, credit mechanisms or deductions resulting in limited or no tax levying on certain profits. Switzerland is generally considered a tax haven due to its low corporate tax rate of 8.5%. Additional cantonal and municipal rates can increase the maximum corporate tax rate (including federal, cantonal and communal taxes) to a maximum of 21.6%.

Exxaro has a logistics and marketing office in Zug, Switzerland, Exxaro International Trading AG (EITAG). Zug is considered a trading hub for various commodities, including coal. The reason for Exxaro operating in Zug is based on sound business principles. Exxaro does not derive a tax benefit from operating in Switzerland. Although Exxaro pays 12% corporate tax in Switzerland (federal and cantonal taxes combined), the company's profits are imputed in the income of ROCSI Holdings Proprietary Limited in terms of section 9D of the Income Tax Act, 1962 (Act 58 of 1962) (Income Tax Act).

For more information, please refer to the country-by-country section of this report.

TAX INCENTIVES

Exxaro contracts a specialist service provider to assist the group in maximising tax incentives provided by government either through special allowances in terms of the Income Tax Act or incentive programmes offered by the national departments of Science and Technology, Mineral Resources and Energy, and Trade, Industry and Competition. We are in the process of sourcing a new supplier in terms of our supply chain policies and procedures.

In prior years, Exxaro has benefited from the following allowances in terms of the Income Tax Act:

• Industrial policy project grants in terms of section 12(I)
• Research and development allowances in terms of section 11D
• Learnership allowances in terms of section 12H
• Energy efficiency allowances in terms of section 12L

Exxaro recognises the value of its human capital and continues to invest in training. Grootegeluk and Matla claimed learnership allowances for 281 new registered learners during 2021 and another 86 learners completed their training agreements. Total learnership allowances amounting to R15.5 million were claimed by these mines, resulting in a total tax saving of almost R4.3 million. For more information see ESG report: People section

No other incentives were claimed as deductions in calculating the taxable income of the relevant taxpayers in 2021.

In support of Exxaro's sustainability goals to continue lowering its energy consumption, Exxaro will again pursue the benefits of energy efficiency allowances offered in terms of the Income Tax Act. A new service provider will be appointed to verify claims. For more information on Exxaro's climate change response/decarbonisation strategy, refer to our ESG report "Climate Change" and Energy Management sections.

STAKEHOLDER ENGAGEMENT

Honest and transparent engagements with stakeholders on tax matters are summarised below.

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PERFORMANCE MANAGEMENT

		The group tax manager consults Exxaro's recruitment policies to ensure employees are qualified with the necessary skills and experience for each tax function role and its responsibilities
		Exxaro financially supports training and formal postgraduate studies. employees regularly attend courses and seminars
		Formal development programmes are in place for tax employees
		Personal performance appraisals assess employees' commitment to risk management
		Bonus and share option schemes retain tax function employees with rewards for excellent performance and non-performance is addressed by Exxaro's group human resources business unit

TAX DIGITALISATION

Robotic process automation (RPA) and artificial intelligence assist Exxaro's tax function in becoming a valued strategic partner by improving efficiency and effectiveness. RPA eliminates repetitive, time-consuming manual tasks and mitigates tax risks. The following digital automation projects have been approved and are in different stages of implementation:

• Automation of VAT apportionment calculations
• Monitoring dashboard on tax compliance and administration
• Automated reconciliation of IT14SD (supplementary declaration of income tax, VAT, employees' tax and customs after submission of the company's tax return)

We expect the projects to be completed and tested within the first quarter of 2022.