TAX TRANPARENCY REPORT

Transcription

1 TAX TRANPARENCY REPORT

2 TAX TRANSPARENCY AND REPORT ON CONTRIBUTION TO PUBLIC FINANCES Tax Transparency has been gaining importance for the stakeholders like Government and the communities and range of initiatives have been taken worldwide for the tax disclosure requirement. Globally, there have been three major initiatives taken up for disclosure of public finance contributions, Extractive Industries Transparency Initiative (EITI) being the first one. EITI was followed by legislation enacted in the United States under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Later EU came out with EU s Transparency and Accounting Directives (Directives). In addition, the G-20 sponsored Base Erosion and Profit Shifting (BEPS) led by Organization for Economic Cooperation and Development (OECD) has also been established to reshape the international tax landscape in line with the modern business practices. United Kingdom (UK) has also come up with draft legislation on The report on payments to Government Regulations 2014 to be effective from next year. We hope that eventually tax disclosure requirements will be consistent globally and Governments will work together to adopt a consistent global approach around disclosures and thresholds. This is our first voluntary tax transparency report that shows the contributions we make to the public finances in the countries in which we operate to provide insights into the contributions made by us to public finances.

3 1. VEDANTA S APPROACH TO TAX Our approach to tax is as below: i. Our Philosophy: Transparency is the core principle as we firmly believe in long term sustainable value creation for our multiple- stakeholders including the government and society at large. We remain at the forefront of tax reporting by managing the tax affairs in a succinct and straightforward manner. We understand our responsibility to make an appropriate contribution back to the government and the surrounding communities where we belong. Our business approach is based on the following principles: i. Being a responsible taxpayer, ii. Being fair and reasonable in all our dealings with the tax authorities and iii. Ensuring that tax risks are dealt with in an efficient and proactive manner. ii. Approach to tax transparency As a part of our initiative to come on the forefront of tax transparency, Vedanta has prepared this report for the year ending 31 March 2015 to ensure proactive transparency in tax reporting and greater accountability towards our stakeholders and enable them in getting detailed information about the overall economic contribution of Vedanta to the government of countries where we operate. The report has been prepared voluntarily. Vedanta over the years has worked on simplifying the group structure for the benefit of shareholders and other stakeholders. Holding company entities are disclosed in full to appropriate Governments and regulatory authorities In case of inter-group transactions, we ensure that the taxes are paid on transfer price determined on arm s length basis, in conformity with the local legislative requirements and international best practices. In FY , Vedanta contributed US$ 5.8 bn to public finances through a wide range of tax contributions in the nature of Corporate Income taxes, royalties, profit oil and also through significant indirect revenue contributions by way of withholding taxes and Indirect taxes. Tax contribution amount of US$ 4.6 bn as mentioned in our press release/ annual report is net of input credits and does not consider withholding taxes and social security contributions. The contribution of Vedanta to public finances is 45% of the revenue. iii. Tax engagement and Governance Vedanta strongly believes in a tax strategy which conforms to the global code of business conduct with a zero tolerance on corruption and bribery. Our tax teams around the world are required to operate according to a clearly defined set of behavior including acting with integrity and communicating openly. Within this governance framework, the conduct of Group s tax

4 affairs and the management of tax risks are delegated to tax professionals. We cooperate and share the information proactively with tax authorities during the course of tax audits. This is not only to be in compliance with the local laws but also to improve transparency about our tax affairs and to create sustainable relationships. Vedanta regularly engages with Governments, typically through public consultation processes or in our role as a leading member of industry group through which we provide our perspective on how best to frame the taxation policy for the sector in which we operate: That balances the need for Government Revenue and also ensures sustainable investment in Society. That results in giving certainty on tax front to Industry on contentious issues which mitigates the litigation risk. We are committed to comply with all the applicable statutory obligations and the corresponding disclosure of the same to tax authorities thereby maintaining consistent harmony with the tax authorities. Tax matters are regularly presented to our Audit Committee and Board who takes a lot of interest in ensuring that our approach to tax meets our commitments to shareholders and our ambition of good tax governance and tax transparency. Tax risks are identified and reported to Board in accordance with company s policies and procedures in relation to risk management and assessment. 2. OUR TAX CONTRIBUTION TO PUBLIC FINANCES IN FY (A) We have collated total tax contributions made by the Company and its subsidiaries to their host governments. The distribution of taxes paid by the Group reflects the geographical spread of the Group s operations. Accordingly, the majority of the tax was paid in India. Although, the Group has headquarters in UK, the taxes paid in UK are not significant as the material operations and assets are located outside UK. (B) For the purpose of preparation of this table, we have shown the tax contributions under two broad categories of taxes i.e. Taxes borne and Indirect Revenue Contributions. Taxes borne primarily comprise Corporate income tax (including Corporate Dividend tax which is profit based), royalty related tax payments, production entitlements i.e. profit oil and other material payments made to the Government such as production based Oil Cess, Stamp Duty Payments, Levies on Import/Export, Local Municipal taxes, Green levies etc. Indirect Revenue Contributions primarily comprise of taxes collected and paid on behalf of our employees and vendors i.e. withholding taxes, payroll taxes (professional taxes), payments of value added taxes on sales and other Social Security Contributions to fund the Social Security program of the governments for the employees etc.

5 The below table-1 summarises the countrywise percentages of revenue, Profit before tax (PBT) and Corporate tax of the Company in FY : All amounts are in US$ million Country wise Operations Revenue (External) Reven ue (%) Profit Before Tax (PBT)* Profit Before Tax (%) Contributio n to Public Finances Contributio n to Public Finances (%) INDIA 10, (4,775.6) - 5, UK - - (360.8) IRELAND NAMIBIA SOUTH AFRICA 0.3 AUSTRALIA - - (47.2) ZAMBIA (313.2) Other (235.6) Total 12, (5,640.2) - 5, *The amount is after considering the exceptional items.

6 The below Table-2 summarises the country wise amounts of revenue, Profit before tax (PBT) and Contributions by the Company to public finances in FY : All amounts are in US$ million Countr y wise Operati ons Reven ue (Exter nal) Profi t Befo re Tax Taxe s on Inco me and Capi tal (A) Taxes Borne Govern ment Royaltie s & Profit Oil Othe rs Total payme nts borne Indirect Revenue Contributions Withhol ding Taxes Indir ect Taxe s Oth ers Total Total Contribu tion (II=D+ (C) (I=A+B (D ) (F) E+F) (I+II) +C) (E) (B) , ,13 4, , ,427. 5, INDIA 10,429.3 (4,775.6) UK - (360.8 ) IRELAND NAMIBIA SOUTH AFRICA AUSTRALI - (47.2) A ZAMBIA ( ) OTHERS ( ) Total 12,878.7 (5, , ,14 4, ,20 5, ) Note 1 Amounts reported in the table have not been subject to external assurance and audit. The financial information it contains is consistent with that used to prepare our FY Consolidated Financial Statements and financial statements of group's listed/non listed operating company subsidiaries. In case of Joint venture operations, contributions are shown at gross level as made by the Unincorporated Joint Venture (UJV) of which company subsidiary is operator irrespective of our percentage interest in UJV. Note 2 All data is prepared for the year from 1 April, 2014 to 31 March, The above contributions have been reported on accrual basis. The social expenditures have not been considered in the contribution to public finances shown in the table.

7 Note 3 Vedanta has not disclosed in Table above, the taxes charged by suppliers/ service providers in their invoices and paid by the company. Tax contributions under both the categories i.e. Taxes borne and Indirect Revenue Contributions shown in the table are not netted to the extent of input credits available or any other adjustments under the provision of applicable laws of taxes paid on purchase/ procurement of goods/ services and charged by suppliers/ service providers in the invoice. Note 4 Taxes Borne i. Taxes on Income and Capital Corporate Income Tax is provided at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the Balance Sheet date. Furthermore, it does not include amount of Deferred Tax, if any. It also includes: i. Corporate Dividend Tax which comprises tax charged on payments of dividends or other distributions of profits. ii. Wealth Tax which comprises tax charged on the accumulation of wealth/capital. iii. Fringe Benefit Taxes. Typically, these taxes would be reflected in corporate income tax returns/ wealth tax returns made to governments, and tend to become payable, and are paid, either in the year the profits were made or up to one year later, depending on the tax laws of respective countries as to the timing of payments. ii. Government royalties and Profit Oil This comprises of contributions made to public finances in the form of royalties, license fees and resource rents, for example, contribution for the extraction of minerals or metals or crude oil or gas. These form part of operating costs. Profit oil represents share of profit paid to the government on account of production of crude oil and natural gas from the fields awarded by government as per the terms of Production Sharing Contract (PSC). Typically, this is generally reflected in various forms/ returns prescribed by the government for this purpose. Government s share of profit oil is accounted for when the obligation (legal or constructive) in respect of the same arises Profit Oil is netted off from revenue generated from such operations. iii. Other taxes borne This comprises of Cess paid on production of crude oil In India, Stamp duty that arises on transfer of assets or capital, Levies on import/export of goods (considered part of operating costs), municipal taxes, Service tax, Entry tax/octroi and other taxes borne. These form part of operating costs.

8 Indirect Revenue Contributions iv. Withholding Taxes This comprises of payroll and employee taxes (including professional tax) withheld from employee remuneration, and paid to governments, i.e. tax collected and remitted to governments on behalf of employees. Typically, these taxes would be reflected in payroll tax returns made to public finances and tend to be payable, and are paid, on a regular basis (often monthly) throughout the year, shortly after the submission of the returns. It also comprises of taxes withheld or collected from various payments made to contractors and paid to governments, i.e. taxes collected/ deducted and remitted to governments on behalf of the service providers/ vendors. v. Indirect Taxes This comprises of the taxes paid to the Governments on production or sale of goods like Value Added Tax (VAT) /sales tax, Excise Duty, Central Sales Tax etc. These taxes would not be collected if the Company does not produce and make sales to the customers. vi. Other This includes contribution of employers and employees for funding the Social Security program of government like Provident Fund (PF) and Employee State Insurance Fund (ESI) etc. Such contributions are reflected in the monthly and annual returns made to the respective organizations. Please refer to Appendix 1 on types of taxes paid by Vedanta in various countries.

9 Appendix -1 Taxes Paid Below mentioned are the types of taxes paid by Vedanta companies: (1) Corporate Income Tax (2) Corporate Dividend Tax (3) Wealth Tax (4) Government Royalties (5) Profit Oil (6) Oil Cess (7) Duties on Export and Import (8) Other Cesses and Surcharges (9) Stamp duty (10) Municipal Taxes (11) Withholding taxes (12) Excise Duties (13) Value Added Tax (14) Service Tax (15) Octroi/ Entry Tax (16) Provident Fund and Employee State Insurance