1. Tax concept
1.1. Principles of Bionorica’s tax strategy
Bionorica is highly aware of its social role and the associated responsibility it bears towards society, as well as to the communities in all countries in which Bionorica engages in business activities.
In this regard, it is a matter of course for us that taxes, as the most important source of income for a state, should guarantee its macroeconomic stability, and that the levying of adequate taxes, i.e. taxes based on earning power, are a condition for achieving sustainable social goals (e.g. environmental protection, security, education, etc.). By paying the taxes stipulated by law in the individual legal norms, therefore, Bionorica links its successful value creation to the welfare of the public.
Moreover, taxes also cover a company’s demand for public infrastructure and services, as well as its utilisation of natural resources.
This basic understanding is expressed in the following basic principles and guidelines for action which define Bionorica’s tax strategy:
a) Refraining from an aggressive tax policy / reputation as a responsible taxpayer.
This includes, among other things, the clear refusal to involve tax havens, as also evidenced by the corporate structure of Bionorica SE (see link). Furthermore, this statement is also supported by a look at the Group tax rate for the 2021 financial year (FY) of adjusted for special effects 35.4% (see Consolidated Financial Statements of Bionorica SE as at 31 December 2021). This fundamental orientation protects and furthers Bionorica’s reputation as a responsible taxpayer.
b) Strict principle of legality and tax compliance
Tax compliance within Bionorica defines its strategic and organisational efforts to ensure that all relevant locally applicable tax laws and other tax requirements as well as regulations (e.g. documentation, recording and declaration obligations) are observed worldwide. Tax compliance is firmly anchored in the corporate structure, and the responsibilities for it can be identified at all times.
c) Use of tax loopholes
The use of tax loopholes is permitted within the framework of the applicable legal basis for tax optimisation. However, the existing scopes for interpretation should not be overstretched.
d) Fair international distribution of the tax base
As an internationally operating company, Bionorica has the responsibility to achieve a distribution of the tax base on the total value added in the international context that is legally correct, but also generally perceived as fair, by fixing intragroup transfer prices that fully comply with the arm’s length principle.
In order to achieve this, Bionorica follows the concept of the OECD, which essentially provides for adequate compensation for the risk and functional profiles assumed in each case by means of suitable, recognised transfer pricing methods.
e) Constructive cooperation with tax authorities
In its daily activities, Bionorica relies on constructive, trusting cooperation with the relevant tax authorities. The guiding principle here is cooperation, not confrontation.
f) Commitment to continuous improvement and digitalisation of tax processes
Bionorica is committed to the continuous improvement and adaptation of its tax processes. The implementation of digital processes as well as the further training of employees entrusted with tax processes are the focus of our efforts and should not least contribute to tax compliance.
g) Bionorica’s tax strategy is embedded in its general corporate strategy and canon of values
The tax strategy follows and supports the general corporate strategy of Bionorica and the objectives defined therein. It forms an integral part of the formulated strategy, but also of the formulated values of Bionorica.
1.2. Responsibilities and controlling body of the control strategy
The formulation, review and approval of the basic tax strategy are carried out by the entire Executive Board of Bionorica after submission by the CFO and the responsible divisional director.
Professional support for the formulation of the tax strategy is provided by the Financial Services / Tax staff department reporting to the CFO, the local CFOs of the national companies and specialised external consultants.
The presentation and approval process of the tax strategy in the Executive Board follows the Rules of Procedure of the Executive Board of Bionorica SE issued with the approval of the Supervisory Board in accordance with § 77 para. 2 AktG in conjunction with § 12 para. 2 of the Articles of Association of Bionorica SE.
After the Executive Board has passed a resolution, important decisions are discussed with the Supervisory Board at the regular Supervisory Board meetings and, if necessary, approved.
The existing tax strategy is adapted to the rapidly changing legal requirements wherever necessary and thus ad hoc. For this purpose, the internal monitoring of legal changes has been set up. Formal regular reviews of the main components of the tax strategy (e.g. transfer pricing policy) are conducted at least once a year.
1.3 Approach to compliance with regulatory requirements
The approach of Bionorica SE to compliance with regulatory requirements includes the following important aspects (not exhaustive):
- Implementation of a Financial Services / Tax staff unit with the necessary expertise as an internal contact point for the identification and clarification of all tax-related issues and the specification of corresponding guidelines.
- Roll-out of corresponding specification documents.
This includes, for example, the Tax Compliance Manual, which contains the organisation of tax compliance at Bionorica with regard to responsibilities, embedding in the organisational structure and the identification of specific areas of tax risks and other risks and the measures required to minimise them (e.g. through detailed checklists). Furthermore, various other specification documents (procedural instructions, SOPs) on selected tax issues have been drafted, and comprehensive training for these specifications has been implemented among the responsible users with the aid of the training software d.velop. - Extensive further training of the employees in charge of tax processes in the affected departments.
- Mapping of tax processes with the help of digital solutions (e.g. transfer pricing documentation, contract management, etc.) to improve process quality.
- Consistent implementation of the dual control principle for tax-relevant processes.
- Commitment to the continuous improvement process and monitoring of relevant legal changes for the timely adaptation of processes and specifications.
- Conducting internal audit activities to detect and remedy tax weaknesses.
- Consultation with external expertise when clarifying tax issues, e.g. cross-border transactions.
- Creation of a culture that encourages departments to report unknown tax issues to the responsible staff department in advance to ensure that they are handled correctly from a regulatory point of view.
1.4. Link between the tax concept and the strategies for the sustainable business development of the organisation.
Bionorica fundamentally rejects activities that involve purely artificial arrangements aimed at achieving tax arbitrage and that have no real economic substance. As stated above, Bionorica’s tax strategy follows its corporate strategy and its objectives, not vice versa.
Furthermore, successful, sustainable economic management requires, among other things, a stable political environment in terms of a social market economy, security, quality education and a good infrastructure. With our tax payments, we intend to make a contribution to supporting these important success factors for our entrepreneurial activities and thereby strengthen the location factors. This sets a process of mutual reinforcement in motion. A good economic framework promotes sustainable corporate growth and enables the generation of profits and thus the generation of additional tax substrate. This in turn gives policy-makers the opportunity to realise their objectives in a sustainable manner. This is a win-win situation if tax policy is laid out with a sense of proportion and purpose.
2. Tax governance, control and risk management
2.1. Description of the tax governance and the control framework
Within Bionorica, tax compliance is originally anchored in the tax department (Financial Services / Tax department). The tax department coordinates and clarifies tax-relevant issues with the financial accounting and controlling departments, in particular, but also with the legal department and the human resources department. Bionorica’s tax department is the primary contact for all content and tax-related issues. In the event of potential legal violations, the tax department also consults the Compliance Office. This also applies if (impending) official investigations become known. Internal audit activities are also carried out on an ad-hoc or random basis to detect risks and develop solutions.
In terms of the organisational structure, the tax department reports directly to Bionorica’s Chief Financial Officer. If there is a need to engage external (tax) consultants, auditors or other experts, for example, the tax department also makes this selection in consultation with the Chief Financial Officer.
Foreign subsidiaries and operating sites or representative offices of Bionorica SE have internal or external tax representatives and report to the local CFO. In the case of Group matters, the CFO of Bionorica SE and the tax department must be involved.
Bionorica’s tax risk policy is based primarily on ex-ante risk avoidance by means of a non-aggressive tax policy and corresponding expert guidelines regarding identified high-risk tax processes as well as the continuous training of employees involved in tax processes. The identification of high-risk processes, their management and monitoring, the quantification of the possible losses and the formulation of measures to minimise the risks are tasks carried out by the Financial Services / Tax staff unit together with the specialist departments involved and, if necessary, with the help of external experts. In the process, the risk-bearing capacity of the respective company is also taken into account in conjunction with other identified risk categories outside the tax scope, thus creating a holistic view of risks.
Tax governance and the control framework are monitored, on the one hand, by means of ad-hoc reviews of tax processes (e.g. in the scope of a review of tax audits or occasioned by internal questions) and, on the other hand, through random audits of tax processes classified as particularly high-risk. These audits are carried out by the Financial Services / Tax staff unit or the internal audit department and, if necessary, external experts.
2.2. Reporting of unethical or illegal tax practices
Bionorica has established a central compliance organisation with a Chief Compliance Officer (CCO) as the contact for all questions and problems in the area of compliance. This is supported in the subsidiaries by local compliance officers who report to the CCO. Strict attention is paid to protecting whistleblowers. The compliance organisation is always available as a contact point for whistleblowers, also regarding instances of unethical conduct in connection with taxes and duties. Alternatively, whistleblowers are naturally also free to contact the Financial Services/Tax staff unit or the works council.
2.3. Audit procedures for information relating to taxes
Bionorica and its subsidiaries are extensively audited by the respective tax authorities with regard to the correctness of their tax information. For example, as a large corporation, Bionorica SE is subject to a complete follow-up audit by the German tax authorities. Authorities conduct further audits (e.g. external wage tax audit) to help ensure tax compliance.
The tax information is also reviewed as part of the mandatory audit of the annual financial statements. In the scope of the auditor’s reporting, the results of the audit are also forwarded to the Supervisory Board.
3. Stakeholder engagement and management of tax concerns
As already explained in the context of the principles of the corporate tax strategy under 1.1., point e), Bionorica has committed itself to working together closely with the relevant tax authorities worldwide. This is demonstrated by the fact that there are currently no tax disputes pending anywhere worldwide. However, this does not mean that legally defensible tax positions that work in Bionorica’s favour are disclosed without intensive discussion.
Bionorica and its legal representatives refrain from exerting direct political influence on tax issues, but they do express their opinion publicly on selected issues, thereby stimulating discourse on fundamental tax issues.
Bionorica is naturally also a member of various professional associations, such as the Bundesverband der Pharmazeutischen Industrie (BPI), in which Bionorica takes an active role and which itself represents tax positions vis-à-vis politicians.
In formulating its tax strategy, Bionorica takes the concerns or suggestions of its stakeholders (e.g. employees, partners and suppliers) very seriously, incorporating them into the concrete design of tax processes.
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