Introduction

At the Nederlandse Spoorwegen (headed by NS Groep NV) the passenger is at the heart of everything we do. NS wishes to enhance sustainable travel in the Netherlands while at the same time maintaining a healthy conduct of business. Activities outside the Netherlands help to achieve this objective through the principle of “Earn, Learn, Prepare”. NS carries out activities in the United Kingdom and Germany through its 100% subsidiary Abellio, and in Ireland through its 100% subsidiary NS Financial Services.

This document explains how NS handles taxes and tax risks. This tax strategy is approved by the NS Board of Directors and applies to all taxes in all countries where NS is active. Publication of the tax strategy is considered to meet the obligations set out within Part 2 of schedule 19 of the Finance Act 2016. For the avoidance of doubt, this strategy applies to and includes all entities (companies including dormants, partnerships, branches etc) held by NS Groep NV.

Social responsibility

Taxes are the primary source of revenue for governments. These revenues are used to fund general facilities which, in the case of NS, are of major importance. For example, they may include rail infrastructure. NS believes that it has an obligation to deal with taxes in a socially-responsible way.

Tax principles

From its obligation to deal with taxes in a socially-responsible way, NS assumes the principle that it must act in accordance with (tax) law and legislation, taking the purpose and intent of the law into account. This means that the literal text of tax legislation alone is not the decisive factor. Taking a responsible attitude to tax also means refraining from establishing structures in which saving tax is the primary objective. Transactions are entered into when they serve a real commercial purpose. This is the case if the tax consequences of such transactions are proportionate to the commercial effects, both qualitatively (in terms of complexity) and quantitatively (in terms of financial impact).

NS is an organisation with a prominent role in Dutch society, and all of its shares are held by the Dutch State, in effect the Ministry of Finance. Being a state-owned company also brings along a special responsibility.

For business operations where NS is in competition with other market participants, it is important that a level playing field is guaranteed. For example, when in competition to bid for a public transport franchise, NS must consider the other market players and place a bid that is as attractive as possible to win the franchise. Because taxes are part of the operating costs of licenses, these costs will be carefully examined. On the one hand this is to ensure compliance with the applicable tax legislation, and on the other to take advantage of tax facilities, for example for research and development or sustainable investments.

About leasing activities

In the late 90s, the Dutch government created a plan to allow local governments to bid for concessions for unprofitable regional railway lines. NS foresaw that this plan could lead to a third of its rolling stock becoming superfluous. After considering a number of alternatives, NS decided to establish its own leasing company. The lifetime of trains is, in fact, longer (average 30 years) than the duration of concessions (average 10 years). Due to the attractive investment climate in Ireland, NS chose to conduct the leasing activities there through NS Financial Services. A few years later, the Dutch government, in light of the European railway legislation, also decided to tender the Dutch core network. This also gave rise to a risk of there being further superfluous rolling stock that NS would normally have deployed on the core network. NS therefore started to also lease rolling stock for the core network through NS Financial Services.

With respect to leasing trains from abroad, NS concluded an agreement with its shareholder, the Ministry of Finance, in early 2015. The starting principle is that, where a level playing field can be guaranteed, NS will no longer lease trains from abroad. Since the Dutch core network has been awarded to NS without a public tender, new trains have no longer been leased from Ireland since 2015. In addition, it was agreed that the Irish lease portfolio of existing trains for the - core network would be phased out. This has now happened on an accelerated basis. However, because the economic considerations for the leasing of trains have not changed, NS has established a new leasing company in the Netherlands, under which all trains for the core network fall.

Furthermore, part of the agreement with the Ministry of Finance is that, from 2015, new trains for tenders that are submitted by NS for local lines in the Netherlands will be sourced from the Netherlands. Leasing trains is a conventional working method when bidding for concessions. Other public transport companies also make use of this method. The public transport companies that compete with NS have the possibility to use foreign leasing companies as long as this is not in contradiction with the applicable legislation or the terms and conditions set by the awarding authorities. For future contracts, such competitive disadvantage for NS can only be prevented if a level playing field can be created differently; for example, through the terms and conditions of the concession drawn up by the awarding authority, or through laws and regulations that prohibit the use of foreign leasing companies. For foreign concessions, NS is committed to achieving a level playing field in accordance with the agreement with the Ministry of Finance.

Relationship with tax authorities

NS attaches great importance to good relations with the tax authorities in all countries where it operates. For example, NS entered into an agreement with the Dutch tax authorities in 2010, which makes so-called horizontal monitoring between NS and the Dutch tax authorities possible. The key terms here are: trust, mutual understanding and transparency. Under the agreement, NS enters into consultation with the Dutch tax authorities about any issue that could result in disagreement. The objective is to work as much as possible on an ongoing and current basis, so that NS can continually clarify its tax position. NS makes submissions to the Dutch tax authorities on a quarterly basis.

NS also takes a proactive approach to its tax affairs abroad. In the event of uncertainties, the tax authorities are approached so that agreement can be reached on important topics. In the United Kingdom for example, Abellio has a Customer Relationship Manager (“CRM”) at HM Revenue and Customs so that Abellio can discuss issues on an ongoing and current basis.

Governance

The NS Board of Directors has total oversight of the tax affairs of NS. The organisation within NS is focused on ensuring that all important decisions concerning tax matters are reviewed by the tax department, and that NS meets its tax obligations in all countries in which it is active.

The NS tax department is the consultant and coordinator to the NS Board of Directors, its subsidiaries and the Dutch tax authorities in the Netherlands for all tax affairs. Furthermore, the tax department acts as the contact point for the tax affairs towards other internal and external stakeholders. Outside the Netherlands, the contacts of the tax department with the tax authorities are through the local subsidiaries. The tax department reports to the Chief Financial Officer of NS. The tax department regularly uses external tax consultants in order to get a second opinion on important tax questions, make use of specialised knowledge, get a better understanding of new tax legislation and receive assistance in setting up and amending tax management processes.

Abellio and NS Financial Services manage their local tax obligations through their finance departments and engage external consultants for tax compliance and country-specific tax issues. In particular, external consultants are called in to assist in the event of a complicated issue or an uncertain tax position. The Board of Abellio and NS Financial Services have total oversight of all taxation matters in their countries and ensure regular communication with the NS Board of Directors and the tax department of NS.

Degree of acceptance of tax risks and risk management

NS strives to submit accurate and complete declarations in a timely manner and to pay its tax obligations on time. Given the scope of activities and the resulting tax obligations, process related tax risks are inevitable. NS aims to proactively identify and manage such risks. In addition, NS monitors the design, implementation and operational effectiveness of the tax management processes in accordance with the risk management policies and procedures.

The NS Board of Directors has defined its risk appetite in eight themes. Tax risks are grouped under the themes of “Integrity & Compliance” and “Reputation”. For both themes, the risk appetite has been set at “averse”. This is also considered appropriate in relation to the obligation of NS to deal with taxes responsibly. The risks (including tax risks) are recorded by NS in a risk register, which is periodically reviewed by the NS Board of Directors. The measures required to control each risk are also recorded.

Transparency

NS is transparent about its tax position. The annual report details for each country how much corporate income tax, payroll tax and VAT is paid by NS and its subsidiaries. The annual report also contains the effective tax rate, as well as a detailed breakdown of the deferred tax assets and liabilities. Furthermore, the auditor's report describes how the tax position is audited and the tax risks are assessed.