Tax approach

Exxaro believes in sustainable value creation, enabled by carefully considering the relationship between the capitals it uses and affects. These capitals are natural, social and relationship, manufactured, human, intellectual and financial, and Exxaro has integrated them in its 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.

Our tax philosophy

Taxation is an integral part of our business strategy as tax is the natural outflow of each business decision. Exxaro manages taxation as part of its enterprise risk management (ERM) framework, which strives to create sustainable value for all stakeholders through operational efficiency, continuous improvement, regulatory compliance and responsible citizenship, within acceptable risk parameters. Exxaro's TRM philosophy is aligned to its overall risk management philosophy, business strategy and objectives. At a high level, Exxaro's TRM strategy aims to create value, protect Exxaro against loss, ensure effective tax planning and compliance with tax legislation and appropriate financial reporting.

Exxaro's TRM framework articulates our tax strategy and is our primary means of managing our tax approach. The framework is aimed at an internal audience and is not available publicly. All information deemed relevant for an external audience is included in this report annually.

The TRM framework is reviewed on an ad hoc basis when significant changes occur that affect Exxaro and its risk appetite. Any changes to the TRM framework must be approved by the audit committee. The group tax manager, through the finance director, is accountable to the board of directors (board) for designing, implementing, monitoring and reporting the TRM process.

Our approach to tax supports and contributes to the group's 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 material and complex tax transactions are supported by sound technical opinions
• Ensuring 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 authorities in the jurisdictions in which we operate. 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 2022, SARS officers conducted a business review of Exxaro's coal business, for which we shared specific requested information and discussed the future outlook of our coal business.

 Refer to SARS audits.

In prior years, we commented on the litigation processes of Mafube Coal Mining Proprietary Limited (Mafube), Exxaro's 50% joint venture 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). Court dates for the appeal have been set for 30 August and 1 September 2023.

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 relevant discussions as they arise.

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, Exxaro International Trading AG (EITAG), in Zug, Switzerland. Zug is considered a trading hub for various commodities, including coal. Exxaro's operation in Zug is based on sound business principles; the company 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 and included in the taxable income of Rocsi Holdings Proprietary Limited in terms of section 9D of the Income Tax Act, 1962 (Act 58 of 1962) (Income Tax Act).

 Refer to country-by-country information.

Tax incentives

Exxaro recognises the value of its human capital and continues to invest in training. Grootegeluk and Matla claimed learnership allowances for 378 new registered learners during 2022 (2021: 281) and 34 other learners completed their training agreements (2021: 86). These mines claimed total learnership allowances amounting to R13.3 million (2021: R15.5 million), resulting in a total tax saving of almost R3.7 million (2021: R4.3 million).

 Refer to the people section in our ESG report.

No other incentives were claimed as deductions in calculating the taxable income of the relevant taxpayers in 2022.

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

Stakeholder engagement

Exxaro engages proactively with our stakeholders to create shared value. Stakeholder views and concerns are managed through a holistic stakeholder engagement approach. Our stakeholder engagement procedures enable us to respond to any tax-related matters that may arise, ensuring engagement is targeted, meaningful and transparent.

 Refer to the ESG report for more information on our stakeholder management.

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

Stakeholder group	Key concerns and expectations	Our response
SARS	Non-compliance with tax laws causes reputational damage and financial loss Capacity constraints due to ongoing SARS audits and information requests Complex restructuring transactions, sales or acquisitions of investments or assets expose Exxaro to adverse tax consequences Complicated and regular changes to tax legislation pose risks and increase the cost of tax compliance	Regular interaction with SARS relationship manager to build trust and support ethical behaviour – guided by the King IV Report on Corporate GovernanceTM for South Africa, 2016 (King IV)1 – and ensuring SARS is administratively compliant and upholds its service charter for refunds and finalisation of audits Manage tax risks within a board-approved framework Transparent behaviour with prompt response to requests, audits, voluntary disclosure programmes and detailed tax return submissions Value-added tax (VAT) analytics tool identifies incorrect VAT treatments proactively Regular revision and external audit of transfer pricing policies Employ qualified people and manage their performance Engage with expert legal advisers for transactions that have a tax impact above R30 million2 or involve: Acquisitions or sales of investments Projects in foreign jurisdictions Group restructuring projects
Financial reporting audiences (shareholders and financiers)	Tax reporting does not fairly represent Exxaro's financial position	Automated tax consolidation tool developed by external tax and information technology (IT) specialists to calculate tax disclosure required by the International Accounting Standard 12 accounting treatment for income tax Qualified professionals manage tax reporting
Communities	Communities in areas surrounding Exxaro's operations do not benefit from money spent on approved public benefit activities	The Exxaro Matla Setshabeng Development, a non-profit company (NPC) with section 18A status, was established in 2020, and is now operational, benefiting Exxaro employees and communities in areas surrounding our operations. Senior employees are directors of the NPC to ensure compliance with applicable laws and governance. Exxaro also invests in public benefit activities as listed in the Ninth Schedule to the Income Tax Act, such as social upliftment, education and building critical infrastructure in the communities it operates through the Exxaro Chairman's Fund and the Exxaro Foundation
Industry	The mining industry's unique challenges and requirements are not considered in the development of tax systems and legislation	Exxaro actively participates in public policy advocacy through the Minerals Council South Africa, the South African Institute of Taxation, the National Business Initiative and Business Unity South Africa

1	Copyright and trademarks are owned by the Institute of Directors in South Africa NPC and all of its rights are reserved.
2	This amount has increased from R10 million and is effective from 2023 due to the implementation of Exxaro's new TRM policy.

Performance management

Exxaro undertakes the following performance management initiatives:
	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 invests in training and formal postgraduate studies, and 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 human resources business unit

Tax digitalisation

Robotic process automation (RPA) and artificial intelligence assist Exxaro's tax function to become 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:

Project	Status
Automation of VAT apportionment calculations	Completed and implemented
Automation of data extraction from e-filing	Completed and implemented
Monitoring dashboard on tax compliance and administration	Implementation expected early in the 2023 financial year
Automation of IT14SD returns	Project stopped since SARS discontinued the return