Tax governance

Governance oversight

An awareness of TRM throughout the organisation, from the operations to the boardroom, is important to ensure a proactive approach and appropriate governance oversight. TRM should be core to every business decision, from a transaction's inception to its completion and post-implementation.

Exxaro is committed to complying with the code of corporate practices and conduct set out in King IV. In terms of this code, Exxaro's board and audit committee assume responsibility for managing tax risks and ensuring Exxaro's tax strategy is aligned with its business strategy. Tax and tax risks are always on the audit committee's agenda. Operationally, the group tax manager is accountable for this function, reporting directly to the group finance director.

The corporate tax function is organisationally and physically separate from the finance function and centralised at Exxaro's head office.

The group tax manager reviews tax implications of projects presented to the investment review committee and executive management committee to keep the tax function informed of transactions at inception stage, particularly decisions with significant impact. This ensures effective tax planning and TRM for operational cost savings.

Board level oversight	Audit committee Monitors effectiveness of the TRM framework and is accountable for compliance with the TRM framework Reviews the TRM framework for deficiencies and ensures corrective action is taken Provides risk management oversight and control

Group level executive management and oversight	Finance director Reports tax-related matters to the audit committee	Chief risk officer Takes overall ownership of the ERM framework Provides risk management guidance and direction Ensures the TRM framework is in line with the overall ERM framework	Chief audit executive and internal audit Performs an independent evaluation of the effectiveness of the TRM process and controls

Operational management and oversight	Group tax manager Identifies and analyses risks Manages the implementation of controls and processes to mitigate risks Manages documentation of the TRM framework Reports on TRM to the chief risk officer


Operational execution	Corporate tax function – tax department employees Executes risk management activities in day-to-day activities in accordance with the TRM framework	TRM champion Assists the group tax manager in implementing and monitoring compliance with controls and procedures as prescribed by the TRM framework Maintains relevant registers (logs) required by the TRM framework Assists group tax manager to maintain TRM documentation Assists group tax manager in reporting on TRM to the chief risk officer

Policies and control

The TRM framework was updated in 2022 and approved by the board in November 2022. The updated framework includes standard operating procedures for VAT and diesel refunds in terms of the diesel rebate scheme, as well as for carbon tax.

The group tax manager is responsible for implementing and monitoring compliance with controls and procedures prescribed by the framework as well as identifying, analysing and evaluating the impact of events and associated risks on the group's strategic objectives.

Our board, audit committee, executive management and other internal and external stakeholders are informed about TRM activities. Exxaro's risk reporting is driven by stakeholder expectations and requirements and our open and transparent reporting objective.

The group tax manager provides quarterly and biannual reports to the audit committee on:

Status of compliance with income tax filing to local and offshore tax authorities
Status of significant tax disputes, audits and inquiries by authorities
Significant tax developments affecting the business
Significant tax risks identified (graded as likely to occur, with a tax impact above R30 million, where controls are inadequate to mitigate identified risks)
The tax effect of material transactions such as acquisitions and disposals of assets, investments and businesses

Exxaro maintains transfer pricing policies for offshore transactions with connected parties. In addition to applying the local tax laws of the jurisdictions in which we operate, we follow the Organisation for Economic Co-operation and Development's principles on transfer pricing and other international tax matters to ensure we pay tax in the jurisdictions in which we operate.

Our tax function upholds group document retention policies and uses the SARS e-filing system as an additional document database.

Mechanisms for reporting tax-related concerns

Exxaro's stakeholders can anonymously report any concerns, breaches of Exxaro's code of ethics, fraud or misconduct that includes tax matters on an independent platform.

Our ESG report provides more detail on Exxaro's fraud and ethics hotline.

Assurance

Exxaro mitigates tax risk through four lines of defence:

First line of defence: Daily operational management and controls
Second line of defence: Executive committee and audit committee oversee operational management
Third line of defence: Internal and external assurance of TRM on an ad hoc or rotational basis for objective, independent appraisal of the framework and processes
Fourth line of defence: SARS performs ad hoc audits to ensure compliance with relevant tax legislation

Internal audits

In 2022, our internal auditors conducted follow-up audits on carbon tax, VAT on export transactions and diesel refunds as per the internal audit team's assessment. All internal audit findings were cleared by 31 December 2022. Standard operating procedures were adjusted to address internal control deficiencies. There were no new audit findings in 2022.

SARS audits

The following SARS audits were conducted during 2022:

Legal entity	Tax type	Period audited	Status of audit	Result of audit
Exxaro Coal Proprietary Limited (Exxaro Coal)	Income tax	2018 year-of-assessment	In progress	SARS issued audit findings; Exxaro responded to the findings. We are awaiting SARS's response.
Exxaro Coal Mpumalanga Proprietary Limited (Exxaro Coal Mpumalanga)	Income tax	2018 to 2020 years-of-assessment	In progress	SARS issued audit findings; Exxaro responded to the findings. We are awaiting SARS's response.
Exxaro Coal Mpumalanga	Diesel refunds	December 2018 to February 2021	Completed	SARS issued a letter of demand in April 2022 in conclusion of the audit.

Open years of assessments

The following tax years are open to SARS for assessment. Income tax filings to SARS prescribe after three years in terms of the Tax Administration Act, 2011 (Act 28 of 2011) (Tax Administration Act) and after five years in terms of Swiss tax legislation.

Entity	Open years of assessment
Major subsidiaries
Exxaro Coal	2018 to 2021
EITAG	2017 to 2021
Material to the group
Exxaro Coal Mpumalanga	2018 to 2021
Exxaro Resources	2019 to 2021
Amakhala Emoyeni Renewable Energy Project 1 Proprietary Limited (Amakhala Emoyeni)	2019 to 2021
Tsitsikamma Community Wind Farm Proprietary Limited (Tsitsikamma community windfarm)	2019 to 2021

Only entities classified as major subsidiaries or material to the group have been listed. A major subsidiary represents 25% or more of total assets or revenue of the consolidated group results (JSE Limited Listings Requirements service issue 25). Material entities do not meet the 25% criteria but are material to the group.