Managing financial and tax risks

Financial decision-making governance is the responsibility of the two Finance Committees (Strategic Finance Committee and Operational Finance Committee), with the former considering issues relating to the financing strategy and the latter dealing with the practical methods of its implementation.

The Company has defined financial policies, which forbid speculative transactions notably on financial instruments, and that are subject to regular review. These policies were brought together in a Group financial policy. These procedures set out the principles and procedures for the management of financial risks to which the business is exposed, notably in relation to:

1. foreign exchange risk: the Company has defined methods for hedging its main foreign exchange risks, whether this is borne by the holding companies or the operating entities, in terms of authorized hedging instruments, the decision process and the execution of transactions;

2. interest rate risk: the Company has defined methods managed on a centralized basis for the hedging of interest rates related to indebtedness that is carried in major currencies (mainly EUR, USD, JPY, and CNY), which represent more than 90% of total net indebtedness with:

• a selection of authorized tools,
• the hedging decision processes,
• methods of executing transactions.

For other foreign currency indebtedness, rules have been defined in order to ensure that the transactions initiated to hedge interest rate risk are consistent with Group objectives;

3. counterparty risks: the Company has defined rules aimed at ensuring that the Group’s counterparties are sufficiently diversified and solid (commitment limits/minimum rating);

4. liquidity risks: the Company has defined rules aimed at ensuring the Group has an appropriate level of “confirmation” and diversification (by type and maturity) for all external financing sources. The Group staggers short- and long-term repayment maturities over time in order to limit amounts to be refinanced each year and has precautionary facilities.

These measures are supplemented by treasury management rules adapted to local circumstances, which are aimed at ensuring compliance and security of transactions and optimizing the management of liquidity (forecasting of cash in/cash out, etc.).

The application of this financial policy is controlled by the Finance Department. The majority of transactions are executed directly on a centralized basis (financing and management of related interest rate risk, hedging of foreign exchange risk), which is completed by consolidated reports provided by various Group entities on a monthly or quarterly basis, depending on the type of risk.

The activities are managed on the basis of highly segregated duties, using a multilateral negotiation platform, cash management software, and a communication platform linked to the Swift banking network.

As far as tax is concerned, the Group focuses on complying with laws and regulations. Modifications of laws and regulations are followed and monitored by its Tax Department and its local Financial Departments.

The Group’s tax charter supports its ambition to remain a leader in its sector by acting in a responsible manner, consistent with the Group’s long-term growth strategy. Air Liquide has defined the following principles which govern its tax policy,

• Group entities must respect the laws and regulations in force, as well as the international standards that affect it such as those of the OECD, in particular on transfer prices;
• Group entities ensure that tax returns and payments are completed in compliance with local regulations. They complete the required tax returns according to the jurisdictions in which the Group operates;
•  the Group is committed to acting with integrity in all tax-related matters. It aims to operate in a transparent manner and build constructive, long-term relationships with the tax authorities;
• the Group deals with tax-related matters by banning tax havens and does not make use of shell corporations without economic substance;
• the Group protects value for its shareholders by taking measures to minimize double taxation phenomena. Furthermore, it acts to minimize fiscal risk.

Its tax strategy is in line with the Group’s strategy. It is transparent, sustainable in the long term and complies with the Code of Conduct.

Within this governance framework, the Group’s tax affairs are managed by a team of dedicated, qualified tax experts, which work closely with management and respect the Group’s values.