Tax strategy and risk management

The Group is subject to taxation in the UK and the various foreign countries in which it operates. Tax legislation of the jurisdictions in which the Group operates differs and is subject to interpretation by management and the government authorities, and as such, creates a risk of non-compliance with specific tax requirements. Whilst the Directors believe that the Group is in substantial compliance with tax legislation and contractual terms entered into that relate to tax, the absence of established case history, the complexity and judgemental nature of tax legislation in certain jurisdictions result in additional risk for the Group. Specific areas of interpretation include the determination of the mineral extraction tax expense for each subsoil contract, the applicability of excess profits tax to the Group’s mining and processing operations and the structuring of cross border transactions, particularly in respect of the application of transfer pricing policies.

The Group’s core objectives in managing and controlling its tax affairs and related tax risks are as follows:

• ensuring compliance with applicable rules and regulations in the jurisdictions in which the Group operates; and
• structuring the business in the most efficient and transparent manner with the emphasis being on the maximisation of shareholder value.

The Group takes a responsible and transparent approach to the management and control of its tax affairs and related tax risks, and has therefore adopted a tax strategy, which has been approved by the Board, that is aimed at achieving the objectives, thereby aligning it with the Group’s long-term strategy:

• the Group’s tax risks are assessed as part of the Group’s formal governance processes and are reviewed by the Chief Financial Officer who reports them to the Audit Committee on a regular basis;
• significant tax risks, implications arising from those risks and potential mitigating actions are considered by the Board when strategic decisions are being taken;
• the tax risks of proposed transactions or new areas of business are fully considered before proceeding;
• the half year and annual effective tax rate and the composition of the tax charge are reviewed by the Audit Committee as part of their remit in reviewing the half-yearly and annual reports;
• the Group builds an equitable relationship with the tax authorities in the jurisdictions in which it operates;
• the Group takes appropriate tax advice from reputable professional firms;
• where disputes arise with government authorities with regard to the interpretation and application of tax legislation, the Group is committed to addressing the matter promptly and resolving the matter with the relevant tax authority in an open and constructive manner; and
• the Group employs professional tax managers within the corporate head office and the operating businesses, and provides ongoing technical training to them.

Total tax contribution

During 2009, the Group paid $517 million (2008: $861 million) in taxes across the countries in which it has a presence. Company taxes, such as corporate income taxes, the mineral extraction tax, excess profits tax, royalties and employer taxes, comprised $420 million (2008: $802 million) of this total. In addition, the Group indirectly contributed $97 million (2008: $59 million) in employee taxes and withholding taxes primarily on interest payments and dividends, which the Group collected on behalf of government authorities and paid over to them.

Taxes paid/(received) directly to/by governments by category and region

$ million	Central Asia1	UK	Germany	2009 total	2008 total
Taxes paid/(received)
Corporate income taxes
(including excess profit tax)	167	(23)	–	144	621
Mineral extraction tax	120	–	–	120	–
Payroll taxes (employer’s obligations)	37	1	10	48	57
Customs and stamp duties	23	–	–	23	49
Taxes on properties	25	–	–	25	26
Royalties and environmental payments	57	–	–	57	46
Miscellaneous taxes	3	–	–	3	3
	432	(22)	10	420	802
Taxes collected and remitted
Withholding taxes on dividends,
interest, services	13	–	–	13	4
Payroll taxes (employee’s obligations)	62	5	17	84	55
	75	5	17	97	59
Total	507	(17)	27	517	861

1. ¹ Includes Kazakhstan and Kyrgyzstan