Tax risk management

FRAMEWORK

Exxaro's enterprise risk management (ERM) framework considers today's uncertain operating environment in effective risk management to achieve our strategic objectives. Embedding risk management in existing processes is important for informed decisions and proactive planning. An effective approach to uncertainty and stakeholder expectations requires focus on TRM.

TRM includes operational risk management techniques, regulatory requirements for transparency and disclosure, a restrictive mindset in tax planning and focus on good corporate governance. It is a proactive, systematic analysis of possible unwanted events and responses (including controls and treatment plans) rather than a reactive mechanism for detected events.

TRM is part of Exxaro's ERM structure to ensure the tax function's independence.

PHILOSOPHY AND RISK APPETITE

Exxaro strives to create sustainable value for all stakeholders through operational efficiency, continuous improvement and regulatory compliance.

In line with Exxaro's ERM philosophy, business strategy and objectives, our tax function's TRM creates value, protects the group against loss, and ensures effective tax planning, compliance with tax legislation and appropriate financial reporting within acceptable risk parameters.

Although Exxaro views tax planning as a legitimate business lever within the parameters of tax legislation, Exxaro has zero tolerance for evading any tax liability or facilitating the evasion of any tax liability on behalf of a third party. Exxaro has no appetite for transactions that have no valid commercial purpose other than obtaining a tax benefit. Exxaro has a low appetite for arrangements that could be to the detriment of the organisation in the event of external disclosure. Exxaro avoids tax practices that are misaligned with its approach to tax and tax strategy.

TAX RISK REPORTING

It is important to keep the board, the audit committee, executive management, and other internal and external stakeholders, abreast of TRM activities. Risk reporting is driven by stakeholder expectations and requirements, as well as Exxaro's objective to report openly and transparently.

The following TRM information will be reported.

MATERIAL TAX RISK, OPPORTUNITY AND STRATEGIC RESPONSE

Relevant tax matters are identified by considering:

• Our business risks and opportunities (IR)
• Our stakeholder engagements (IR) and Stakeholder Management (ESG)

Risk can be defined as the probability of an event happening that will impact your objectives and it can be quantified as the:

• Likelihood of an event occurring and the impact thereof

Inherent risk does not consider any controls (except baseline controls, which are intrinsic to the hazard).

Residual risk is where the likelihood is reduced by controls that address the root cause and/or the trigger/driver of the unwanted event and, where the impact is reduced by controls, minimising those impacts.

Risks are prioritised based on inherent risk, a predetermined risk appetite, the likelihood of the matter arising and its impact on value creation. Exxaro's top four material tax risks are discussed below.

These risks have been rated using the following impact scales below which have been approved by the board in Exxaro's TRM policy. The impact scales for tax were specifically reduced from those set in terms of Group ERM in line with Exxaro's reduced appetite for tax risks.

The outcome of the ratings were as follows.

RESIDUAL RISK

INHERENT RISK