Telefónica’s total tax bill amounted to 11,454 million euros, having made the greatest contributions in Brazil and Spain. This indicates that out of every 100 euros in turnover, 24.2 went towards the payment of taxes, of which 6.6 euros were taxes borne and 17.6, taxes collected.
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 and Ethic
In accordance with our Business Principles, at Telefónica we commit to acting with honesty and respect for the law in the management of our fiscal affairs.
Our fiscal policies are in line with this strategy and guide the decisions we make in the management of our fiscal affairs.
The principles that govern our fiscal policies are:
- We are committed to our obligation to pay legally enforceable taxes appropriately in all the countries we operate in, thereby contributing to their economic and social progress.
- We reconcile the fulfilment of our tax obligations with our commitment to creating value for our shareholders through efficient management of the costs associated with fiscal matters.
- We manage our fiscal affairs in accordance with our framework and processes of corporate governance: the Board of Directors and the audit committee are regularly informed of the implementation of fiscal policies.
- We develop practices aimed at the prevention and reduction of fiscal risks in the design and development of our activities in accordance with Telefónica Group’s Fiscal Risk Management Policy (detailed below).
- We seek to ensure transparency in our financial reporting to investors and the Company and we strive to ensure our fiscal affairs are comprehensible.
Code of Tax Conduct Ethics
All Fiscal Management professionals shall:
- Have the necessary academic and practical information relating to accounting, financial and fiscal matters which will enable them to comply with Telefónica Group’s fiscal strategy.
- Develop processes aimed at the prevention and reduction of fiscal risks in the design and development of their activities, in accordance with Telefónica Group’s Fiscal Risk Management Policy (detailed below).
- 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 any fiscal decision is 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.
- Ensure every fiscal decision has a legal basis, and complies with the following basic conditions:
- The revelation of information in full.
- Knowledge of the actual circumstances and facts of the case.
- An assessment of the fiscal risks regarding both fiscal technicalities, and those relating to reputation and business with regard to a particular position being perceived to be correct.
- 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 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. Fiscal risks management are part of the duties of the Audit and control committee of the Board.
This objective is achieved by adherence to the following criteria:
- A solid technical foundation based on the Law.
- Appropriate documentation with a clear explanation of the fiscal posture adopted.
- A close relationship with tax authorities.
- Efficient tax management procedures to ensure accurate tax returns.
The situation of Telefónica 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.
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.
The main situations which require a fiscal risk assessment:
- 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.
Good Tax Practice
Since 2010, Telefónica, S.A., as directed by the Board of Directors, has adhered to the Code of Good Tax Practice, 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.
The current Code of Good Tax Practice contains recommendations, which were adopted voluntarily by the Tax Authorities and Telefónica, aimed at improving the application of our tax system by means of an increase in legal security, mutual cooperation based on good faith and legitimate trust, and the implementation of responsible fiscal policies with the knowledge of the Board of Directors.
The company, in the pursuance of its business activity, and in accordance with the recommendations of the Code of Good Tax Practice, does not use corporate structures 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. Furthermore, in accordance with the Spanish Corporation Law, 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.
Moreover, Telefónica does not have a presence in any of the jurisdictions listed as tax havens, as statutorily established by Spain in accordance with the first Additional Provision of Law 36/2006 on measures for the prevention of tax fraud, in its version which is updated by the second Final Provision of Law 26/2014 of 27 November.
Telefónica Group operations in territories considered by entities, other than the OECD and Spain, to have little or no taxation, exist solely and exclusively for economic and business purposes, and have the material and human resources needed for the development of their own activities. The transfer of profits to these jurisdictions so as to obtain a reduced tax burden is not the objective of any of these operations.
In addition, Telefonica is committed to compliance with the stipulations of the “OECD Guidelines for Multinational Enterprises” in matters of taxation.
In Telefónica, the largest tax contributions come from its companies in Brazil (43%) and Spain (24%)