1. Introduction

Rosneft Oil Company (hereinafter – the Company, or Rosneft) is one of the world’s largest oil and gas companies, operating in more than 25 countries.

Rosneft is a responsible and good faith taxpayer. The Company accrues and pays all applicable taxes, duties and levies established by the legislation of countries of its presence, pursues a balanced and consistent tax policy.

The Company’s main assets are located in the Russian Federation. As the largest Russian taxpayer, Rosneft makes a significant contribution to budget revenues and social and economic development of the country.

Key Tax Principles of Rosneft have been developed within the framework of «Rosneft-2022» Strategy, implying transition to new forms of business management and organization in order to further strengthen competitive advantages.

This document outlines the strategic objectives and principles of Rosneft in the area of taxation.

2. Strategic Tax Objectives of Rosneft

Being an integral element of the finance function, the Company’s tax function ensures efficient fulfillment of all applicable fiscal obligations.

The Company’s strategic tax objectives are set out below.

2.1. Protection of shareholder value by the means of:

• efficient controls over tax accruals and payments;
• support of strategic decision-making process;
• enhancing tax transparency via cooperative tax compliance instruments (including Tax Monitoring);
• efficient planning and management of tax burden within the existing legislative framework;
• monitoring and timely reaction to changes in fiscal environment resulting from tax policies implemented by state authorities of various levels and changes in law-enforcement practices;
• optimization of tax function costs by outsourcing of routine tax function processes to shared service centers, etc.

2.2. Improving cash flow by the means of:

• efficient management of tax component of the working capital;
• efficient planning of tax burden allocation over time in line with applicable legislation.

2.3. Tax risk management by the means of:

• implementation and maintenance of integrated internal tax controls system;
• planning and control of pricing in intragroup transactions, including transfer pricing compliance;
• preventing of contracting non-trustworthy counterparties.

3. Key Tax Principles of Rosneft

The Company’s tax performance is based on full and timely compliance with the tax legislation requirements as well as the following principles:

3.1. Efficiency. Taxes are accrued and paid based on a real economic substance of our business activities. Rosneft employs applicable lawful means to sustain its tax efficiency, including federal and regional tax incentives and other tax reliefs provided by legislation in relevant jurisdictions.

3.2. Unified methodology. Group companies adopt unified methodology to ensure proper dealing with uncertain tax positions and maintaining correct tax accounting and tax reporting records.

3.3. Risk management. In case of any uncertainties in tax legislation, all efforts are made to minimize tax risks, including obtaining clarifications from relevant state authorities.

3.4. Information disclosure. Full assistance is provided to the tax authorities in accordance with respective legislation in course of tax audits. The Company discloses tax information in full compliance with the legislation of jurisdictions of presence and international tax anti-avoidance agreements, as well as complies with substantiated information requests of the tax and other state authorities.

3.5. Efficient tax disputes resolution. Rosneft seeks to constructively resolve tax disputes at the pre-trial stage in accordance with the applicable legislation. Where pre-trial resolution cannot be achieved, all efforts are made to defend the Company’s position in courts.

3.6. Controls over counterparty selection. Rosneft refrains from concluding transactions with counterparties if there are grounds to believe they commit tax evasion or might participate in tax evasion schemes. The Company deploys its internal control systems to prevent contracting non-trustworthy counterparties.

3.7. Building a sustainable tax environment. Rosneft takes proactive approach to the tax legislation development process. Our experts develop tax legislation change proposals aimed at sustaining business efficiency of oil and gas businesses and corresponding the needs of social and economic development of the countries and regions of the Company’s presence. Presentation and discussion of the Company’s initiatives with state authorities and business associations are exercised in accordance with the procedures provided by law and relevant practices.

3.8. Transparency. The Company is committed to the principles of transparency of its international shareholding and management structures and their conformity with economic substance of cross-border activities.

3.9. Planning. The Company maintains planning, forecasting, and regular monitoring of tax accruals and payments to ensure high capital turnover.

4. Rosneft Tax Function

4.1. In line with the Key Tax Principles, we developed a centralized strategic decision-making approach with respect to development and implementation of the tax policy.

4.2. We maintain in-house tax function and employ highly competent tax experts. Meanwhile, we are using internationally recognized external experts and consultants in particularly complex areas of expertise.

4.3. We seek to control and consistently reduce tax function costs by the means of transferring routine operations, not related to the achievement of strategic goals and objectives of the Company, to shared service centers (while maintaining an adequate level of control over the execution of such operations), standardization and automation of tax accounting, automation of information exchange with the tax authorities, including the use of extended cooperative tax compliance platforms (tax monitoring), as well as ensuring synergies with other business and corporate functions.

4.4. We continuously monitor the efficiency of the tax function, develop and streamline internal control procedures aimed at improvement of tax business process efficiency and management of tax risks.

5. Implementation of Strategic Tax Objectives

We regularly assess the effectiveness of the Company’s tax policy, the consistency of its goals and practices to the principles outlined above, as well as other applicable standards of the Company.

6. Final Provisions

The Key Tax Principles are subject to regular updates when necessary.