Good governance, transparency and integrity

Values

Endesa has an ongoing commitment to good governance, transparency and integrity which, together with the creation of value for shareholders and investors, are an essential feature of its conduct in the management of business and corporate activities.

In this context, compliance with the tax legislation in force at all times is part of the principles that inspire its corporate responsibility, and the taxes paid are one of its contributions to the economic and social development of the society in which it operates. Proof of this is that compliance with tax regulations has been included among the company's values.

The Sustainability Policy also indicates that compliance with current tax legislation is one of the driving principles of sustainability, with the company's fiscal contribution being one of its main contributions to the economic and social development of the society in which it operates.

Tax Strategy

Endesa's Tax Strategy is governed by the following guidelines:

• Compliance with current tax regulations, adopting a reasonable interpretation of them at all times and trying to avoid, based on this interpretation, inefficiencies and undue tax costs for Endesa.
• The waiver of certain actions, such as: Undertaking transactions that are only for a tax benefit; a commitment to avoid the structuring of artificial transactions or transactions unrelated to the company's activity, and the use of opaque structures, for the sole purpose of reducing the tax burden; and not making investments in or through tax havens for the sole purpose of reducing the tax burden.
• It takes into consideration the principles of the OECD's BEPS (Action Plan on Base Erosion and Profit Shifting) Project to combat base erosion and profit shifting both in Endesa and in its subsidiaries controlled in each of the jurisdictions where it operates.
• Full cooperation with the Tax Administration in its verification actions.
• Tax transparency vis-à-vis third parties (shareholders, customers, suppliers, employees, regulators, etc.) with regard to the current principles governing action in tax matters, on the bodies involved in Endesa's fiscal governance and on the details of its tax contribution in the countries where it operates.
• The promotion of cooperative relations with the Tax Administration.

The Tax Strategy  was approved by Endesa's Board of Directors on 15 June 2015 and updated on 19 June 2017. It will be updated later when required. 

Tax Risk Control and Management System

The Audit and Compliance Committee (hereinafter, CAC) is entrusted with the function of supervising the operation and effectiveness of the Group's risk management and control system, including tax risks. In accordance with the provisions of the Audit and Compliance Committee Regulations, it will directly supervise the Risk Committee, which is the internal body responsible for ensuring the proper functioning of the company's risk control and management systems, ensuring the participation of Senior Management in strategic risk control and management decisions and fostering a culture in which risk is a factor to be taken into account in all decisions and at all levels in the entity.

For its part, the Risk Committee is configured as the tax compliance body, responsible for the functions of supervising the operation and effectiveness of the Group's Tax Risk Control and Management System, reporting for these purposes to the Audit and Compliance Committee, all in accordance with the provisions of the UNE 19602 Standard.

The scope of the Risk Committee covers all risks, specifically including tax risks, and excluding those already included in the Criminal Risk Prevention Model and those related to the Internal Control of Financial and Non-Financial Reporting which are reported to the CAC through other channels (Supervision Committee and Transparency Committee).

The Tax Risk Control and Management model is made up of five elements that, combined, guarantee an appropriate control system for risk prevention:

• Control Environment: Set of standards, processes and structures that constitute the basis on which the internal control of the organisation is developed.
• Risk assessment and control activities: Undertaken jointly by the Risk Committee and those responsible for the processes. Each identified tax risk scenario has at least one control activity whose objective is to prevent the risk from materialising and to prevent the risks analysed from occurring.
• Supervisory activities: There is ongoing supervision to check whether its design and operation are suitable with regard to the requirements of the applicable regulations, analysing and resolving any incidents identified.
• Information and communication: The necessary initiatives are promoted for suitable dissemination and the training of personnel, so that the members of the company can adequately comply with the provisions of the regulations.
• Disciplinary system: Non-compliance with the measures provided in the model and with the company's rules of conduct are sanctioned by applying ENDESA's sanctioning regime contained in the company's Collective Agreement.

Risks are managed and supervised by different Units that are coordinated through the quarterly meetings of the Risk Coordination Work Group, where the Tax Affairs Area is represented by its manager.

ENDESA's Tax Risk Control and Management Policy is intended to be the base document for ENDESA's Tax Control Framework. It seeks to regulate the principles that should guide ENDESA's Tax Function in order to undertake proper management and control of tax risks by constructing the following:

• The principles that should guide the management of tax risks, establishing the obligations and responsibilities within the organization in this regard and including a description of the measures that should be in place to mitigate the tax risks that may be identified.
• The principles that should guide the correct control of tax risks, which include firstly, undertaking a series of ex ante preventive controls and secondly, the undertaking a number of ex-post checks entailing the identification, measurement, analysis, monitoring and reporting of these risks in line with the provisions of ENDESA's Risk Control and Management Policy and the ENDESA Risk Map Operating Instructions.

For Endesa, due diligence is a significant factor in the development of its business, both in relation to the control of the selection of the organisation's members (internal due diligence) and of the third parties with which it deals (external due diligence).

Since 2020, the Tax Compliance Management System has been certified by AENOR pursuant to the provisions of the UNE 19602 Standard. This Certification accredits:

• The existence of a tax control system to identify, prevent and detect tax risks in order to avoid additional tax demands, fines from and even criminal liability vis-à-vis the Tax Authority.
• The existence of control and mitigation mechanisms in the event that a possible fiscal risk is finally identified.

This certification serves as additional proof that our organisation is determined to comply with all its tax obligations to the tax authorities or the courts. Furthermore, the certification is compatible with ENDESA's tax responsibility policy and with its Fiscal Transparency and Ethical Compliance Policy as regards its relationship with state, regional and local government agencies.