2019 Good tax practices self-assessment...Repsol's tax policies and practices are aligned with the latest international standards. The B-Team Responsible Tax Principles(1) Nº Principles

REPSOL Group

2019

Good Tax Practices

Self-Assessment

Index

The B-Team Responsible Tax Principles

New GRI 207 standard: Tax 2019

OECD Model for Tax Risk Control and the Tax Control Framework Questionnaire prepared by the Internal Revenue Service

2

The B-Team Responsible Tax Principles and compliance self-assessment by the Repsol Group

Repsol's tax policies and practices are aligned with the latest international standards.

The B-Team Responsible

Tax Principles(1)

Nº Principles Description Check Compliance evidence in Repsol

1Accountability & Governance

Tax is a core part of corporate responsibility and governanceand is overseen by the Board of Directors (the Board)

• Tax Policy approved by the Board, binding for all Group employees. • The Board isinvolved in the Group's tax strategy and management. • The Repsol GlobalSustainability Plan incorporates tax objectives.

2 ComplianceWe comply with the tax legislation of the countries in whichwe operate and pay the right amount of tax at the right time,in the countries where we create value

• Internal regulations that ensure full compliance with tax obligations. • Organizationalstructure and adequate means to comply tax obligations. • Internal procedure forsetting transfer prices aligned with the creation of value and the principle of fullcompetition.

3 Business Structure

We will only use business structures that are driven bycommercial considerations, are aligned with business activityand which have genuine substance. We do not seek abusivetax results.

• Corporate structure aligned with the business, adjusted to legal requirements andcorporate governance standards. • Simplification of the corporate structure. • No useof instrumental entities in tax havens or special purpose vehicles.

4Relationships with Tax Authorities

We seek, wherever possible, to develop cooperativerelationships with tax authorities, based on mutual respect,transparency and trust.

• Application of the Spanish Code of Good Tax Practices. • Adherence to similarinitiatives in Canada, the Netherlands, Portugal, UK and Singapore. • Voluntary TaxTransparency Report to Spanish Tax Authorities (AEAT). • Voluntary participation inthe first ICAP programme. • Qualification as an Authorized Economic Operator in theEU (AEO).

5Seeking & Accepting Tax Incentives

Where we claim tax incentives offered by governmentauthorities, we seek to ensure that they are transparent andconsistent with statutory or regulatory frameworks.

• Use of tax benefits following the letter and spirit of the law. • Verification that theincentives are generally available to all economic operators • Support forgovernment publication of tax incentives in oil contracts.

6Supporting Effective Tax Systems

We engage constructively in national and internationaldialogue with governments, business groups and civilsociety to support the development of effective tax systems,legislation and administration.

• Participation in public consultation processes. Collaboration with OECD, UN and EU.Dialogue with NGOs. • Engagement with international initiatives of responsibletaxation and tax governance (B-Team).

7 TransparencyWe provide regular information to our stakeholders, includinginvestors, policy makers, employees, civil society and thegeneral public, about our approach to tax and taxes paid.

• A transparency referent in Spain according to NGO reports. • Publication of taxpayments by countries. • Detailed tax information published in the website. • Countryby country report (OECD Country-by-Country report).

(1) These principles of responsible taxation have been defined by the B-Team, a group of multinational companies committed to good tax practices, after an open dialogue with NGOs and official organizations.

3Fully compliant Partially compliant Non-compliant

Index




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Introduction

What is the Global

Reporting Initiative?

The Global Reporting Initiative (GRI) is a non-profit organization established in 1997 by a joint initiative of two non-governmental entities: CEBES(Coalition of Environmentally Responsible Economies) and UNEP (United Nations Environment Program).

It is the institution that created the first global standard for the elaboration of sustainability reports voluntarily applicable to those companiesthat wish to evaluate their performance in the economic, social and environmental fields (i.e. “triple botton line”) and thus promote continuousdialogue with the stakeholders.

Its standards constitute an internationally accepted / valued reference when evaluating the quality of public information prepared bycompanies, specifically in those areas of special sensitivity related to sustainability.

What is the GRI 207?

It is a set of guidelines and recommendations for voluntary compliance that aim to facilitate the understanding by civil society of the taxcontribution made by companies and the sustainability of their tax policies.

Published on December 5, 2019, they focus specifically on the following areas of interest:

General principles of Good Tax Governance (Disclosure 207-1 Approach to Tax).

Tax Control Framework (Disclosure 207-2 Tax Governance, control and risk management).

Cooperative relations with interest groups (Disclosure 207-3 Stakeholder engagement. Management of tax concerns).

Publicity of the Country-by-Country Report (Disclosure 207-4 Country-by-country reporting).

Its recommendations are applicable as of January 1, 2021, although the follow-up of its guidelines in public information regarding previousyears is positively assessed.

Who makesthe standards?

The Global Sustainability Standards Board (GSSB): independent operating entity constituted under the auspices of GRI and formed by experiencedmembers and recognized prestige. The GSSB works in the public interest and in accordance with the vision and mission of GRI.

Compliance with the GRI 207 guidelines and recommendations is completely voluntary. Their adherence to them can be publicly disclosed by companies as a manifestation of their commitment to the best international standards in terms of transparency and good governance.

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New GRI 207 standard and compliance self-assessment by the Repsol Group (1)

207-1 RequIrements Guidelines Check Compliance evidence in Repsol

a.i Tax strategyExistence of a public tax strategy applicable to all companies and employees of a Group.

Repsol tax policy approved by the Board and applicable to all employees and companies of the Repsol Group.

Evidence: Public disclosure on the Repsol corporate website.

a.iiTax in the Boardroom

Involvement of the Board of Directors in the approval and periodic monitoring of Tax Policies.

Principle 4 of the Repsol Tax Policy.

Evidence: Annual presentation of the Tax Policies to the Board (tax performance and risk management).

a.iii Compliance Commitment to regulatory compliance.

Principle 1 of Repsol Tax Policy. Compliance with the law, adhering to both its letter andits spirit.

Evidence: Internal regulatory framework that ensures full compliance with taxobligations; organizational structure and adequate means to comply with tax obligations.

a.ivTaxation, businessand sustainability

Alignment of Tax Policy and Strategy with business reality and the commitment to sustainability.

Principles 1 and 2 of Repsol Tax Policy.

Evidence: Responsible payment of taxes, as a contribution to the sustainabledevelopment of the countries where performs its activities.

Internal procedure for setting transfer prices aligned with the creation of value and theprinciple of full competition.

Tax planning aligned with economic activity, based on a reasonable interpretation,without giving rise to abusive / fraudulent results.

Tax objectives embedded in the General Sustainability Plan / Sustainable DevelopmentGoals.

General Principles of

Good Tax Governance




a.i Tax Governance BodyIdentify the highest governance body responsible for the review of the TCF.


Evidence: Tax policy approved by the Board, responsible for the Group's risk management policy (including tax).

Involvement of the Board in the evolution of the Group's tax strategy and management.

a.iiTax strategy in the organization

Description of the processes, projects, programs andinitiatives that support the tax strategy and taxprocedures.

Evidence: TCF validated by independent expert, tax management and reporting procedures.Expert professional team subject to continuous training, hiring processes (People andOrganization) professionalized to find optimal profiles, contingency plan (coverage of keytax positions).

a.iii Tax Risk Management Tax risk identification, management and supervision.

Principle 4 of the Repsol Tax Policy. Average/low risk appetite/tolerance.

Evidence: TCF, Financial Information Control System (FICS), reporting procedures and taxmanagement, Risk Map, Offence Prevention Map, management tools (SIGEFI / SRF), audit(external and internal).

a.iv TCF Compliance TCF supervision process.

Principle 4 of the Repsol Tax Policy. Senior management involvement in the supervision of the TCF.

Evidence: FICS, audits, review by the Board of the tax policy. Key Controls.

bWhistleblowerChannel

Mechanisms to report unethical or illegal behavior.Evidence: Repsol Ethics & Compliance Channel (Repsol Whistleblower Channel), managed byan independent third party, which guarantees absolute confidentiality and without fear ofpossible retaliation.

cOrganizational practices on external verification of reports

External verification on quality / robustness of the TCF.External audit services provided by consultants with good reputation.

TCF verification by independent expert.

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Tax Control Framework

(TCF)

Fully compliant Partially compliant Non-compliant



a.iCooperative relationships with tax authorities

Enhancement of cooperative compliance as a mechanism to ensure certainty and reduce litigation.


Evidence: Spanish cooperative compliance (adherence to Code of Good Tax Practices,presentation of the Voluntary Tax Transparency Report, qualification as AEO) andinternational (ICAP, EITI, cooperative compliance programs in Canada, Portugal,Netherlands, Singapore, UK, USA).

a.iiEnvironmental management

Public positioning on tax issues and active participation in forums / platforms to manage the regulatory environment (Public policy advocacy on tax).


Evidence: Collaboration with international organizations (OECD, UN, EU), governments andNGOs.

Engagement with responsible taxation and tax governance initiatives (B-Team, UNE).

Detailed and updated information on tax advocacy activity (corporate website.)

a.iiiActive dialogue with stakeholders

Description of the mechanisms for dialogue with the main social actors (NGOs, social action platforms, etc.) and their influence on tax decision-making processes.


Evidence: Follow-up of the recommendations of the AEAT on matters regarding theVoluntary Tax Transparency Report.

Fluent communication with NGOs (Oxfam, FCyT, ORSC), appreciating theirrecommendations on transparency (breakdown of information on controversialterritories).

Risk assessment issued by the tax administrations participating at the ICAP.

CooperativeRelationships




a.iTax jurisdictions of Group entities

Complete information on Group entities that includesboth PEs and inactive companies (dormant), withexpress indication of their tax residence.

Annexes Ia and Ib of the Annual Accounts report.

Description of companies in controversial territories (web).

Information included the in Country by Country Report (OECD Country-by-Country report).

b.i Entity Names Detailed list of entities resident in each tax jurisdiction. Annexes Ia and Ib of the Annual Accounts report.

b.ii Main activityGeneral description of the activity carried out by theGroup in each jurisdiction.

Information included in the Country by Country Report (OECD Country-by-Country report).

b.iii EmployeesNumber of employees, and the basis of calculation of this number.

b.iv

IncomeRevenues from third-party sales and Revenues fromintra-group transactions with other tax jurisdictions (1).

b.v

Country byCountry Report

(1/3)


(1) Revenue from third party sales and income from intragroup transactions are reported in accordance with the OECD standard, including those received in the same jurisdiction.



(2/3)


b.vi Profit/loss before taxCriteria followed to determine the consolidated profit / loss attributable to each jurisdiction.

Information included in the Country by Country Report(OECD Country-by-Country report).

b.viiTangible assets other than cash and cash equivalents

Criteria followed to determine the volume of assets attributable to each jurisdiction.

b.viiiCorporate income tax paid on a cash basis

Criteria followed to determine the tax paid with special reference to the allocation of WHT payments.

b.ixCorporate income tax accrued on profit/loss

b.xReconciliation between the statutory and the accrued corporate income tax

In those jurisdictions where it applies, a conceptual description of theadjustments that lead to differences (tax relief, exemptions, incentives orspecial tax provisions when an entity benefits from a preferential taxtreatment).

c The time period coveredPreference for providing contemporary information of the CbC (same year / period as the public information in Annual Accounts). Otherwise, justify.

N-A


New GRI 207 standard and compliance self-assessment by the Repsol Group – Reporting Recommendations


(3/3)

207-4 Recommendation Guidelines Check Compliance evidence in Repsol

2.3.1Total employeeremuneration

Incorporation of information on remuneration costsas an indicator of the value generated in ajurisdiction.

In the Integrated Management Report (IMR) the average remuneration of the workforce in Spain and geographic areas is included. (additionally following the model established in the GRI 405-2 standard (2) ).

2.3.2Taxes withheld and paid on behalf of employees

Information disaggregated of tax withholdings madeon account of employee salaries.

Information included in the Country by Country Report (OECD Country-by-Country report).

2.3.3Taxes collected from customers on behalf of a tax authority

Information disaggregated of taxes collected (byjurisdiction and type).

Evidence: Report of Payments to governments, IMR and corporate website (www.repsol.com).

2.3.4Industry-related and other taxes or payments to governments

Description of other taxes or tax figures supported / collected by jurisdiction.

Evidence: Report of Payments to governments, IMR.

2.3.5Significant uncertain taxpositions

Description of the main tax disputes andquantification of their impact.

Evidence: Note of the report of the Annual Accounts.

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(2) The content of the GRI 405-2 standard refers to the ratio of the base salary and the remuneration of women versus men.

Fully compliant Partially compliant Non-compliant

Index




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Tax Risk Control OECD Model and the Tax Control Framework Questionnaire prepared by the Internal Revenue Service

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The OECD model (2016) on the Tax Risk Control Model (TRCM) codifies the essential elements or blocks of a modern tax risk control framework thatlarge companies can follow to configure and apply their internal risk management systems.

The TRCM model developed by the OECD is linked to the regulatory compliance programs based on legal certainty and the reduction of compliance costsin exchange for a greater level of transparency on the part of companies when disclosing their tax risks. However, these programs do not exempt fromperiodic checks nor to a certain extent.

What is the OECD model of Tax

Control Framework?

What is the Tax Control Framework

Questionnaire developed by the Internal Revenue

Service?

The Tax Control Framework Questionnaire (2019) developed by the US Department of the Treasury (IRS) is an element that complements the OECDstandard on TRCM, by implementing a modern mechanism of self-assessment of the essential elements of the management system and control oftax risks of large companies for the purposes of the participation of an American listed entity in its most relevant cooperative program (ComplianceAssurance Program). In this sense, we understand that it provides another relevant source (high standard of a modern tax administration) to make abenchmark of the Repsol Group TCF.

Contents of the Tax Control Framework

Questionnaire

Description of internal controls.

Description of the tax risk review process: presentations to the Board, guidance of the Board in the management of the tax department and thelevel of acceptable risk, policies and procedures for the transfer of matters to the Board and approval procedure (sign-off) of relevanttransactions, delimitation of materiality levels, internal audit functions, existence of outsourced tax functions, etc.

For listed companies, whether SOX certifications evaluate the effectiveness of the controls indicated above.

If the external auditors perform tests on the TCF and, where appropriate, description of the results and any inefficiencies detected.

The self-assessment of the Repsol Group´s tax risk control system, carried out in accordance with the OECD Guide on Tax Control Frameworks and the TCFs self-assessmentquestionnaire prepared by the US IRS for the purpose of accessing its cooperative compliance program for large listed corporations (Compliance Assurance Program, CAP),reveals, in our opinion, a high level of convergence and compliance with the criteria set forth in the international standards used to contrast and confirms the correctconfiguration of the multi-functional TCF system articulated by the Repsol Group.

Nº Principles Description Check Compliance evidence in Repsol

1 Tax StrategyTax objectives established by the Board with a strategic focus on risk appetite, taxplanning and level of involvement of the Board in decisions, including the generaloperational framework, organization of the tax department and regulatory compliance.

• Tax Policy (00-00540PO).

• Risk Management Policy (00-00477PO).

2OmnicomprensiveTCF

Routine and non-routine operations, assessment of the tax treatment of certainoperations. Risk management should reflect the tax strategy set by the Board.

• Board of Directors Regulation.

• Global Investment Standard (00-00060NO).

• Intragroup Operations Standard (00-00476NO).

• Tax Reporting.

• Map of Tax Risks.

3AssignedResponsibilities

The development of the tax strategy and the TCF corresponds to senior managementunder the supervision of the Board. The implementation of the TCF involves otherdepartments of the company that are involved in routine and non-routine tasks.

• Decision Rights

• Tax Reporting

• Tax Risk Control Procedure.

• Communication of litigations in Spain procedure.

• Closing Procedures

• Transfer Pricing and CbCr documentation procedure.

• Compliance procedures.

• FICS procedures.

4Documentedgovernance

System of rules (procedures) assuring that transactions are carried out in accordance withthe applicable corporate policies and regulations and potential risks of non-compliance areidentified and treated, including the allocation of sufficient means. The governanceprocedure on tax risks must include the approval (sign-off) of the Board.

• Same as assigned responsibilities.

• Tax Reporting

• Risk Management System alienated with IS 31000.

• Tax Management Procedures + SIGEFI-SRF

5Verificationsperformed

Monitoring of compliance with the policies and processes that form part of the TCF by thecompany and the tax authorities (including data crossing with reporting obligations such asDAC6).

• Same as documented governance.

• Standard Compliance Obligations With Public Admins. (200-PRO40MG).

• Integral System of Tax Risks (3 defenses + ISO 31000).

• FICS controls in tax processes (200-PR040MG).

6 Risk assuranceEnsuring that tax risks have adequate controls and tax returns are reliable, establishing a"risk appetite" and a risk management framework capable of identifying deviationsthrough mitigation and elimination mechanisms.

• Board of Directors regulation (sign-off procedures).

• Internal and external TCF operation check.

• Mechanisms for risk mitigation and error correction.

• Annual Internal Audit Review (reporting regulatory compliance to the Board Audit and Control).

• TCF Improvement Action Plan.

OECD model for Tax Risk Control

Tax Risk Control OECD Model and the Tax Control Framework Questionnaire prepared by the Internal Revenue Service


Documents

2019 Good tax practices self-assessment...Repsol's tax policies and practices are aligned with the latest international standards. The B-Team Responsible Tax Principles(1) Nº Principles