Providing NXP taxation principles, approach, governance and engagements applied across our geographic operational footprint.

Overview

Over the past few years, our investors and other stakeholders have shown increased interest in how we approach and manage our tax programs, and we expect this trend to continue. As a result, we are increasing the disclosures around our tax policies. We use the framework for expanded disclosure as set forth in the Global Reporting Initiative's GRI 207 standard. We have detailed our quantitative tax effects in our published financial documents and plan to disclose country-specific information in the future.

Aligning with UN Sustainable Development Goals (SDGs)

Approach, Manage and Assess Risks

The way we approach, manage and assess the risk of taxation is grounded in the corporate objective to act as a socially responsible company. We consider the purpose of tax regulation in a given jurisdiction and maintain strict adherence with applicable tax laws.

Through this wider tax focus, NXP’s contribution is indirectly supportive of the funding of SDGs, especially those that address the global challenges related to economic, social and environmental sustainability.

Tax Strategy

We pursue a tax strategy that is sustainable, transparent and supports NXP’s business priorities while maintaining our focus on the UN SDG. NXP's tax structures follow various recommendations, including those of the Organization for Economic Cooperation and Development (OECD) to avoid tax advantages by using hybrid business structures to artificially minimize tax liabilities. NXP aims to support stable, transparent and predictable tax systems that incentivize long-term investment and economic growth. We believe that operating within this framework creates a constant contribution to the advancement of the SDGs.

Tax Approach

NXP is a socially responsible company in the tax field. Since its establishment as a standalone entity in 2006, NXP has been committed to complying with the taxation laws, including the intention of the laws, of the jurisdictions where it operates. Through our Tax department, we assure our relevant stakeholders that our tax obligations are properly, effectively and correctly handled and also disclosed in the annual and quarterly reports.

As a multinational enterprise, we operate in many different tax jurisdictions and frequently deal with intergroup transfers that involve cross-border payments within the group. To avoid potential tax issues with these internal, cross-border transactions, internal transfers use the same pricing structure as transfers coming from independent parties. This policy of using the same price for intergroup and independent transfers, in what's known as "arm's length transfer pricing" prevents us from shifting profit to low-tax jurisdictions.

The NXP Code of Conduct (CoC) serves as an ethical framework for taxes, and is effectively embedded within the tax strategy and across the tax organization. The CoC promotes a corporate culture of integrity, provides guidance and details the behavior expected from everyone, including NXP employees and all third parties we do business with, to act in a manner consistent with it. This ethical framework is fully embraced and supported by the NXP Board of Directors, the Management Team and the entire tax organization. The result is a tax structure that is fully transparent and complies with internationally accepted taxation principles.

NXP’s taxation strategy is aligned with the businesses in the respective legal entities through which the company operates. We invest in research and development, manufacturing and go-to-market activities using a cross-functional model, leveraged by multiple organizations globally. The resulting product development and extended supply chain is the basis for NXP’s transfer-pricing structure. Considering our product-development framework, NXP leverages the available tax incentives and tax regulations in the various jurisdictions where it operates.

Governance

Within NXP, the Tax department is led by a Senior Vice President (SVP), reporting directly to the Chief Financial Officer (CFO). The CFO is responsible for updating the Audit Committee of the Board of Directors on a regular basis, with support from the tax-department leadership. NXP reviews and approves tax plans and targets annually, consistent with industry-wide, best-in-class control and governance frameworks.

Tax Department Responsibilities

  • Fact-based tax accounting and policy advice is available in a timely manner throughout NXP
  • The proper treatment, coordination and monitoring of tax filings and audits
  • The development of tax-related control policies, directives and tactics to provide clear operational guidelines throughout the organization
  • The deployment of effective, efficient and proper tax accounting procedures
  • The development of a robust tax-accounting control framework which assures compliance with the US's 2002 Sarbanes-Oxley Act (SOX)

Throughout NXP, the regional and functional tax-management teams liaise with relevant counterpart organizations, such as Finance, Accounting, Legal and IT, to assure the deployment and implementation of approved tax strategies.

The NXP Tax department consists of approximately 20 people who manage both regional and functional requirements. The directors of each legal entity in each country are accountable for ensuring compliance. The regional and functional tax-management teams engage with external tax advisors and/or local tax authorities in line with approved tax strategy. Furthermore, the regional tax teams review processes to guarantee NXP’s transfer-price methodology is effectively executed.

Tax Strategy Embedded in the Organization

  • The Tax department is a centralized organization
  • The Tax department participates in mergers and acquisitions (M&A) and/or internal restructuring projects
  • Regional and functional Tax leads hold weekly meetings
  • The CFO and the Tax department’s leadership hold bi-weekly meetings
  • Current and emerging trends are discussed at bi-weekly Base Erosion and Profit Shifting (BEPS) meetings within the Tax department
  • Regular presentations on various tax topics

Risk Assessment and Mitigation

NXP operates on a global basis, and is potentially exposed to numerous risks, including those related to taxation. The risks include, but are not limited to:

  • Unfavorable changes in the respective tax laws and regulations to which NXP is subject
  • Interpretation of tax law or regulations
  • Conclusion or amendment of existing tax treaties by regional tax administrations
  • Unpredictable variation in foreign exchange rates and possible geopolitical conflicts, including the increase of barriers to international trade

When evaluating the acceptable risk limits for taxes, we apply critical and professional reasoning on an issue-by-issue basis.

Within NXP’s global framework, such risks are identified and managed by continuously monitoring the filing process. By operating through regional and functional dimensions, the likelihood of identifying and resolving tax issues in a timely fashion is ensured. Tax accounting processes identify controls to define mitigation procedures for each identified risk. We document the control, mitigation and execution for each identified risk. As an additional measure, tax payments are systematically forecasted and any material deviations between forecast and actuality are analyzed and managed on a weekly basis.

Potential Violations Reporting Mechanism

Anyone can confidentially lodge a complaint concerning potential violations using various reporting channels, such as management, an ethics liaison or the NXP Ethics Committee. Complaints can also be submitted using the phone or web option of the SpeakUp line , which is hosted by an independent third party and facilitates anonymous reporting. A strict policy of non-retaliation is in force to protect any employee who reports potential violations. Processes for informing senior management about allegations include periodic internal reports, although we have no reports of tax-related violations thus far.

Engagement

NXP is committed to open and transparent relationships with tax authorities. For all requests of information or audits, we provide the required documentation in a timely manner. NXP is also committed to fostering and maintaining long-term relationships, grounded on ethical integrity, collaboration and mutual respect.

Through stakeholder engagements, NXP can provide commentary and insight from our perspective as a multinational company and a member of the semiconductor industry. Our engagement includes such activities as providing comments to the OECD's public-discussion papers, open discussions with relevant country authorities, participation in multiple associations, maintaining an extensive network with other companies and collaboration with external tax advisors, including the "Big Four" tax-advisory firms.