Fiscal Transparency

Telefónica’s total tax bill amounted to 11,365 million euros in 2016, having made the greatest contributions in Brazil and Spain. This indicates that out of every 100 euros in turnover, 21.8 went towards the payment of taxes, of which 5.5 euros were taxes borne and 16.3, taxes collected.

The absolute amount of Telefónica's CTT in 2016 has decreased slightly with respect to 2015, mainly due to the evolution of the exchange rates in the relevant Latin American countries.

Out of every 100 euros of value distributed by Telefónica in 2015, 50 euros went towards the payment of taxes. According to PWC’s TTC methodology, the distributed rateable value of a company is composed of the sum of the following elements: shareholder value (dividends, reserves, etc.), wages and salaries (net of tax raised to employees) and net interest and taxes (borne and collected). The economic and social contribution made by Telefónica is measurable not only in terms of the corporation tax paid, but also through other specific contributions in the various countries in which it operates, such as administrative charges (for the use of public property and for the financing of a Radio and Television Corporation, among others), local taxes and Social Security payments, as well as other similar contributions in other countries.

In addition to these taxes which are directly borne by the company, Telefónica contributes to the treasury other quantities that must be taken into account in the company’s total tax contribution, as a result of its activity and via other contributors, such as indirect taxes, staff income deductions and other deductions.

  • Accrual and Payment of Taxes

    In our compliance with the obligation to pay legally enforceable taxes, we must distinguish between taxes recorded as results, and taxes paid which are reflected in cash flow statements, which are both recorded in the Group’s Consolidated Financial Statements.

    The determination of these amounts is due to different principles, in such a way that the principle of accrual determines the amount of tax expenditure, while as regards payment, each country sets rules for the time of payment, which in many cases differs from the time of registration of the tax expenditure. These differences are accounted for as temporary differences, which also distort the amount recorded as tax expenditure.

    Finally, we must emphasize that, as we are dealing with a multinational group, the consolidated accounts incorporate accounting adjustments and deletions, in order to avoid the possible duplication of transactions between the participating companies of the group.

    The conciliation between the accounting result and expenditure due to tax accrued, may be found in the Group’s Consolidated Annual Accounts, published on the Company’s institutional website.

    Similarly, the individual conciliation in the different countries where the group operates, can be found in the individual annual accounts published on each country’s website.

  • Fiscal Strategy

    In accordance with our Business Principles, at Telefonica we commit to acting with honesty and respect for the law in the management of our fiscal affairs.

    Our Fiscal Strategy comprises the following guidelines:

    • Compliance with all the tax obligations in all the countries in which we operate, thus contributing to their economic and social progress, and reconciling our commitment to creating value for our shareholders by the efficient management of the costs associated with the Tax Department. These obligations include:
    • The payment of both the companys own taxes and those collected on behalf of third parties (for instance, applicable indirect taxes or retentions on yields destined for third parties).
    • The provision of tax information corresponding to Group companies.
    • The provision of tax information corresponding to third parties, either by means of periodic obligations or as a result of information requests made by the tax authorities.
    • The commitment for every fiscal decision to be motivated by business and commercial interests. Therefore, the tax implication of any transaction may not be justified independently of the commercial and business reasons which justify the operation in question.
    • Appropriate documentation with a clear explanation of the fiscal posture adopted.
    • Efficient tax management procedures to ensure accurate tax returns.
    • Fiscal risks are managed with the aim of preventing and reducing tax disputes to those which are strictly necessary for the implementation of the company's Fiscal Strategy.
    • Management of fiscal risks arising from interaction with business. When it comes to business decision-making, an exhaustive analysis of the tax implications will always be carried out. If there are several tax alternatives which achieve the same objective, the most efficient alternative, from a tax point of view, shall be opted for.
    • Transfer pricing policy for all transactions between related parties and entities, to ensure the creation of value, by means of activities, assets and the assuming of business-related risks.
    • Effort and commitment to adapting the tax obligations that affect the reality of Telefonica to the new digital economy environment that exists in the current market.
    • A close relationship with the tax authorities. In this regard, since 2010, Telefonica, S.A., as directed by the Board of Directors, has adhered to the Code of Good Practice in Tax Affairs, produced by the Forum for Large Companies, in conjunction with the Spanish tax authorities, in order to prevent the use of structures of an opaque nature for tax purposes. Telefonica also participates in various international forums aimed at the promotion and development of the good practice recommendations of the OECD.
    • Non-use of company structures in order to cover or reduce the transparency of its activities in the eyes of the tax authorities, or any other interested party. Furthermore, in accordance with the Capital Companies Act, the creation or procurement of shares in entities with special purposes or those domiciled in countries or territories which are considered tax havens, as well as any other transactions or operations of a similar nature which, owing to their complexity, could undermine the transparency of Telefonica, is reviewed and, where appropriate, subject to approval by the Board of Directors. In the same way, the approval of investments or transactions of all kinds which, owing to their high amount or special characteristics, have a special tax risk, will also be subject to approval by the Board of Directors.
    • A commitment not to be present in any of the jurisdictions included in the list of tax havens established in Spanish regulations. If, for business reasons, the presence of an operator in a territory classified as a tax haven were to be necessary, authorisation would be sought from the Board of Directors. Telefonica Groups operations in territories regarded by other bodies as having little or no taxation exist solely and exclusively for economic and commercial reasons (Business Purpose), and have the material and human resources needed to conduct the activities, and under no circumstances shall the purpose of these operations be to transfer profits to those jurisdictions in order to obtain a reduction in the tax burden.
    • We strive for transparency in our financial reporting to investors and the Company and we seek to ensure our fiscal affairs are comprehensible.

  • Code of Tax Conduct Ethics

    The Group undertakes to adopt whatever control mechanisms are needed to ensure compliance with tax legislation and the principles outlined below by all companies of the Group, within an appropriate business management framework, for which they shall dedicate the appropriate materials and personnel who have the necessary qualifications.

    The fundamental principles of the fiscal control role are as follows:

    > 2.1. Principle of Accountability

    The head of fiscal control of each of the subsidiaries shall report to the Group Tax Department through the Regional Tax Departments.

     

    > 2.2. Principle of Technical Qualification

    Personnel in the Tax Department must have the necessary academic training and experience in the accountancy, financial and fiscal fields that will enable them to perform their duties in an appropriate manner.

    All Fiscal Management professionals in the Tax Department must:

    • Have the necessary academic training and experience in the accountancy, financial and fiscal fields which will enable them to comply with the Group's fiscal strategy.
    • Implement practices aimed at the prevention and reduction of fiscal risks in the design and carrying out of their activities.
    • Provide the advice needed to ensure that due consideration has been given to the tax implications of the implementation, documentation and maintenance of business decisions.
    • Ensure that all fiscal decisions are motivated by business and commercial interests. Therefore, the tax implication of any transaction may not be justified independently of the commercial and business reasons for carrying out the operation in question.
    • Ensure that every fiscal decision has a legal basis, and complies with the following basic conditions:
    o The revelation of information in full.
    o Knowledge of the actual circumstances and facts of the case.
    o An assessment of the fiscal risks regarding both fiscal technicalities, and those relating to reputation and business with regard to how a particular position may be perceived from the outside.
     
    • Operate in jurisdictions that have adopted the standards of transparency and exchange of information recommended by the OECD and in particular the procedures set forth in Spanish tax law, while avoiding the use of structures of an opaque nature for tax purposes.
    • Promote relations with the Tax Authorities which shall be governed by principles of mutual transparency, trust, good faith and loyalty.

  • Fiscal Risk

    Fiscal risks are managed with the aim of preventing and reducing tax disputes to those which are strictly necessary for the implementation of the company’s fiscal strategy.

    This objective is achieved by adherence to the following criteria:

    •  A solid technical foundation in Law.
    •  Appropriate documentation with a clear explanation of the fiscal posture adopted.
    •  A close relationship with the tax authorities.
    •  Efficient tax management procedures which ensure accurate tax returns.

    When it comes to business decision-making, an exhaustive analysis of the tax implications will always be carried out. If there are several tax alternatives which achieve the same objective, the most efficient alternative, from a tax point of view, shall be opted for.

    The main situations which require a fiscal risk assessment are the following:

    • Procurement and sale of shares.
    • Decisions relating to changes in corporate structures.
    • Business financing agreements.
    • Significant transactions.
    • International trade operations.
    • New internal processes which may affect compliance with tax obligations.

    The situation of Telefonica Group inspections and litigation of a fiscal nature can be found in the Group’s Consolidated Annual Accounts published on the Company’s institutional web page.

  • Good Tax Practice

    In 2010, Telefónica, S.A. adopted the Code of Good Practice in Tax Affairs as decided by the Board of Directors. As a result, the Company does not use corporate structures in the pursuance of its business activity for the purpose of covering up or reducing the transparency of its activities in the eyes of the tax authorities or any other interested party, in accordance with the recommendations of the Code of Good Practice in Tax Affairs.

    Furthermore, in accordance with the Capital Companies Act, the creation or procurement of shares in entities with special purposes or those domiciled in countries or territories which are considered tax havens, as well as any other transactions or operations of a similar nature which, owing to their complexity, could undermine the transparency of Telefónica, is reviewed and, where appropriate, subject to approval by the Board of Directors.

    Telefónica will not create or acquire entities domiciled in any of the jurisdictions included in the list of tax havens established in Spanish regulations. If, for business reasons, the presence of an operator in a territory classified as a tax haven were to be necessary, authorization would be sought from the Board of Directors.

    The Group’s operations in territories regarded by other bodies as having little or no taxation exist solely and exclusively for economic and commercial reasons (Business Purpose), and have the material and human resources needed to conduct the activities, and under no circumstances shall the purpose of those operations be to transfer profits to those jurisdictions in order to obtain a reduction in the tax burden.

    Telefónica is committed to compliance with the stipulations of the "OECD Guidelines for Multinational Enterprises" in matters of taxation.

    The relations of each company with the relevant tax authorities shall be governed by the principles of transparency, mutual trust, good faith and loyalty, and each company in the Group shall adopt the following good tax practices:

    (i) Collaboration with the relevant tax authorities in the search for and identification of solutions with regard to any fraudulent tax practices of which the company is aware which could be implemented in the markets in which it is present.

    (ii) Provision of all tax-related information and documentation requested by the relevant tax authorities in the shortest possible time and with the required scope.

    (iii) The provision and open discussion of all relevant facts of which it is aware with the relevant department of the tax authorities concerned, in order to provide information, where necessary, of the cases in question and to reinforce the agreements and compliance in the course of inspection procedures, to the extent reasonably possible and making every effort to apply good business management practice.

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Tax contributions

In Telefónica, the largest tax contributions come from its companies in Brazil (43%) and Spain (24%)