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Exxaro Resources Limited
Tax report 2020
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Currently viewing: | Tax risk management | Next: Tax performance

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 tax risk management (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.

Exxaro views tax planning as a legitimate business lever within the parameters of tax legislation.

MATERIAL TAX RISK, OPPORTUNITY AND STRATEGIC RESPONSE

Relevant tax matters are identified by considering:

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

Risk Management
 
Ranking
Risk
Context
Strategic treatment
 

1

Diesel rebate audits
  • Uncertainty about SARS compliance requirements for diesel rebates threatens payment of refunds
  • Prolonged audits by SARS for unreasonable periods
  • Continuous engagement with SARS to understand requirements
  • Service provider helps collate and update information to meet SARS requirements
  • Meetings with senior legal representatives to ensure Exxaro acts in line with the legal framework
 

2

Understatement penalties
  • Scope of "prejudice" definition in Tax Administration Act is broad with potential for inadvertent errors
  • Understatement penalties are severe even if there is no financial loss for SARS due to taxpayer disclosure errors
  • SARS penalties for incorrect annual financial statements (AFS) disclosures and late issuance of AFS
  • Group tax manager conducts detailed reviews of submissions to SARS
  • Automation of tax return pack avoids errors and tax consultants are involved in day-to-day business operations
  • AFS completed in terms of latest international financial reporting standards with reviews by senior management and directors
  • Issuance of AFS adheres to corporate financial reporting calendar
 

3

Tax clearance certificates
  • Companies suffer cash flow constraints
  • State-owned entities use different government systems to check
    supplier's tax status – misalignment leads to non-compliance
  • Diesel rebate audits are not finalised resulting in the SARS VAT system showing short payments by taxpayer leading to non-compliance
  • Maintain good relationships with dedicated SARS relationship officers and large business bentre for prompt response when system fails
  • Investigating alternative systems to comply with SARS requirements for diesel refunds
 

4

Disposal and acquisition of investments
  • Understanding tax effects of complex transactions
  • Tax function signs off submissions to investment review committee and executive committee decisions on capital expenditure
  • Expert legal advice for complex restructuring transactions
 

5

Document retention
  • Negative tax adjustments as documents are retained for seven years in line with Companies Act, 2008 (Act 71 of 2008) (Companies Act) but SARS requests older information
  • Adhere to SARS requirements for tax submissions to ensure return prescription periods do not exceed seven-year document retention period

Exxaro Resources Limited Tax report 2020