Monthly Board Meeting Prasanna Nathan CEO 20 th April 2014

Agenda ESCOM Strategy Profit Shifting & Tax Avoidance Tax law Amendment Bill Australia Impact based on OECD & G20 Approach Potential Risks Mitigation Plan

ESCOM - Strategy ESCOM – European Supply Chain Operations Model Combine Supply operations of all GSK subsidiaries under one Holding company for Inventory GSK, Cork – Ireland holding company for inventories New holding company exclusive for inventory – This is an new addition to the existing holding company for intellectual property

Why Ireland? Ireland’s corporation tax rate of 12.5% - One of the lowest in the world Has a favourable holding company regime and is an attractive location to establish corporate support / hub activities A 25% tax credit can be claimed for our R&D Expenditure Has a network of double taxation treaties – More than 50 countries Only English Speaking member of the European Union

Expected Growth – ESCOM Strategy Year on Year Tax Savings – (in Billions) Growth over Competitors (After ESCOM Implementation) Year on Year Savings in Tax to grow from 1.1 billion to 6.5 billion Places GSK way ahead of its competitors in terms of asset value Streamlined supply chain operations which will reduce expenditure in the current supply chain operations

Organization Structure GSK Holdings Pty. Ltd Ireland Entity GSK Netherlands Pty. Ltd. Entity:0119 GSK UK Pty. Ltd. Entity:0117 GSK France Pty. Ltd. Entity:0118 GSK New Zealand Pty. Ltd. Entity: 0220 GSK Malaysia Pty. Ltd. Entity: 0221 GSK Asia-Pac Pty. Ltd Entity: 0027 GSK Australia Pty. Ltd. Entity:0219

Is It Legal? GSK values CSR and Business Ethics Adherence to the three core principles – Coherence, Substance and Transparency This structure may have similarities of profit shifting structure Applying existing tax laws in the existing economic environment to avoid double taxation More of a Tax avoidance Essential to compete in the current economic scenario

Emerging Legal Issue - Australia Tax Law Amendment Bill 2013 – Australia OECD Approach G20 Meet 2014 – Brisbane

Tax Law Amendment Bill Australia Australian Parliament passed a new tax law amendment bill to counter tax avoidance and multinational profit shifting - June 2013 Impact on multi nationals operating from Australia General Anti-Avoidance rule Arm’s Length principles for condition between entities Effective from first income year commencing from 1 st July 2013

Tax Law Amendment Bill – Impact Disclosure of Taxes: Companies with more than 100m annual income, ATO must report details of gross income, taxable income and tax payable –C–Concern about potential queries from media and public General Anti-avoidance rule known as Part IVA –N–Need Sign off from public officers –N–New penalty Regime –A–ATO have powers to substitute transactions Affects financing and Budgeting tasks –T–Tax Deductions –D–Deductibility of interest incurred on debt to finance overseas investment –S–Structuring of foreign subsidiaries and investments More Active ATO scrutiny

OECD Approach & G20 Meet 2014 OECD plans to implement stringent international tax laws to curtail profit shifting abuse G20 meet in 2013 supported OECD views G is crucial as important decisions related to profit shifting are expected International tax laws affecting MNC’s expected to be framed

Mitigation Plan Due to the impact of disclosure, ensure that Low tax levels are not misunderstood. Provide better explanation Need to review existing transfer pricing arrangements to conform with the new transfer pricing rules –B–Be prepared with relevant documentation for the entity –E–Explain how actual conditions are consistent with arm’s Length –E–Ensure our transfer pricing process is consistent with OECD guidelines Identify risks and study the impact on the following –R–Refinancing of existing financial arrangements –C–Capital structures of existing subsidiaries –F–Funding of foreign operations

GSK on OECD and G20 Approach –GSK against profit shifting abuse, however more stringent laws on profit shifting will affecting the existing operations –Disadvantages of double taxation – Push for corporate tax reduction in G20/OECD countries – Join the campaign lobby against OECD limits on profit shifting

References profitshifting noz.html ext shifting/ part_iva_amendments_now_passed_so_make_sure_youre_ready.page