EDF / 2018 Reference document

ENVIRONMENTAL AND SOCIETAL INFORMATION – HUMAN RESOURCES Ethics, compliance, tax transparency

TAX TRANSPARENCY 3.5.2 EDF has implemented a Group tax policy to define the applicable principles, in terms of taxation, to all of the Group’s relations with its financial or business partners and the government or tax authorities. The tax policy is applied by the Group Executive Director responsible for the Group’s Financial Management. It was approved in 2017 by the Executive Committee. At the end of 2018, as in 2017, the Group uploaded its country-by-country report (of data for financial year 2017) to the French tax authorities, in accordance with the provisions of Article 223 (5) c) of the French General Tax Code which follows the OECD’s recommendations. Group tax policy 3.5.2.1 A wide scope The policy covers all the Group’s taxes: direct and indirect taxes, duties, contributions, any tax or customs deductions which are ultimately the responsibility of the Company or its customers (when EDF merely acts as a collector on behalf of third parties). This policy must be applied throughout the Group, by all controlled entities regardless of their nature or geographical location, with the exception of regulated infrastructure managers, for whom it constitutes a guide. All Group staff must comply with this policy which aims to protect the Group’s reputation and to reduce any tax risks to which it may be exposed through its activities. Clear directions: strengthen the tax performance of the Group in strict compliance with national ■ and international tax laws and regulations; control tax risks through continued, systematic improvement, in all Group ■ entities, of the identification and management of fiscal risks; implement the tools, reporting and actions necessary for the continued, ■ optimum, forward-looking management of tax cash flows, (1) as well as attentive and proactive monitoring of the Group’s effective tax rate; ensure the conditions necessary for obtaining constructive relations with the tax ■ and government authorities of all kinds by maintaining a transparent, professional relationship with them.

Ethical principles In the context of the allocation between countries of operating margins internal to the Group, EDF strives to apply a transfer price policy in accordance with the principles of the OECD to justify the resulting revenues. EDF has no legal implantation (company, branch or office of representation) in a territory listed as a non-cooperative state or territory as defined by French and international legislation which is not determined by economic activity reasons and under no circumstances purely by tax reasons. Similarly, cash flow via these countries is prohibited where it is for tax reasons only. Presence in Luxembourg and Ireland Like all major French and international groups, EDF relies on captive and mutual insurance companies to supplement the cover provided by traditional insurance markets. The captive and mutual insurance companies enable EDF to reduce the cost of its insurance schemes and the total sum of premiums paid. EDF has three captive insurance companies, based in Ireland and Luxembourg: Wagram Insurance Company DAC. (wholly owned by EDF), an insurance ■ company founded in 2003 in Dublin which is involved in the majority of the Group’s insurance schemes; Océane Ré (EDF 99.98%), a reinsurance company founded in 2003 in ■ Luxembourg to reinsure EDF’s nuclear civil liability risk; Tereco (Framatome 100%), a reinsurance company within the Framatome ■ consolidation scope located in Luxembourg, to reinsure a portfolio of risks including that of Framatome’s nuclear civil liability. Taxes paid by the Group 3.5.2.2 In 2018, the EDF group’s tax expense (2) was €3,697 million, a 4.4% increase (€156 million) compared to 2017 (up 3.3% in organic terms). The EDF group thus contributes to the development of the French regions through an annual payment of more than €1.8 billion in local taxes to local authorities. Regarding income tax, the effective tax rate of -31.54% in 2018 (3) is mainly related to the pre-tax income of consolidated companies and to non-recurring items.

3.

RECONCILIATION OF THEORETICAL TAX EXPENSE TO ACTUAL TAX EXPENSE (TAX RECONCILIATION)

2018

(in €m)

Pre-tax income of consolidated companies Income tax rate applicable to the parent company

473

34.43%

Theoretical tax expense Differences in tax rates Permanent differences (a)

(163)

(90)

30

Taxes not based on the company's net income (b)

239 132

Unrecognised deferred tax assets

Others

1

ACTUAL TAX EXPENSE EFFECTIVE TAX RATE

149

-31.54%

As a result, the difference between the theoretical tax expense and the effective rate is mainly due to the: (a) favourable impact of disposals of equity investments and assets subject to a ■ reduced tax rate for €199 million; (b) favorable impact of deducting remuneration paid to holders of undated ■ subordinated notes for €203 million.

Adjusted for these non-recurring items, the effective tax rate in 2018 was 25.7%, up from 18% in 2017. Income taxes paid by the Group amounted to €389 million in 2018 (€771 million in 2017): the €382 million decrease in corporation tax paid was essentially due to the significant decrease in taxable profits in France.

Tax cash: tax actually paid or recovered. (1) See note 11 Taxes and Duties in the notes to the Consolidated Financial Statements. (2) See note 16.2 Taxes on Income in the notes to the Consolidated Financial Statements. (3)

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EDF I Reference Document 2018