BAE Systems plc Tax Principles

Governance Principles

BAE Systems has established a tax governance framework that seeks to deliver:

• Clear lines of accountability and responsibility for compliance through the Group’s Operational Framework.
• Compliance with all applicable tax laws and regulations in line with our stakeholders’ expectations.
• Management of the Group’s tax expense and tax risk in a way that is consistent with our values and protects value for the Group.
• Transparent working relationships with tax authorities.

 

Tax Governance & Risk Management 

The Board of BAE Systems is ultimately accountable for the Group’s tax principles, which are approved annually by the Group Chief Financial Officer.

In line with the Operational Framework, the Director of Group Taxation is responsible for BAE Systems’ global day-to-day compliance with the tax principles. The Director of Group Taxation meets regularly with the Group Chief Financial Officer and the Board Audit Committee to review compliance with the tax principles.

Tax risk is managed in accordance with the Tax Operating Framework in compliance with underlying processes. The Group evaluates risks broadly (including financial, reputational and commercial risks) and seeks to minimise uncertainty over any tax risk exposure.

Significant tax risks are monitored and reviewed on a regular basis, and the operational processes that ensure compliance, manage tax risks, establish controls and monitor their effectiveness are documented.

BAE Systems operates internationally and is subject to tax in many different jurisdictions. Supporting the Director of Group Taxation on day-to-day compliance are suitably qualified staff, who apply the Tax Operating Framework in their areas of expertise.

Compliance 

BAE Systems actively considers the implications of its tax principles on the Group’s stakeholders. BAE Systems strives to act with responsibility in relation to tax compliance and manages the Group’s tax expense in a way that is consistent with its values and its legal obligations in all relevant jurisdictions. BAE Systems seeks to ensure compliance with all applicable tax laws and regulations with the aim of paying the right amount of tax in the right territory. 

The Group interprets relevant tax laws in a reasonable way using its best judgement and does not engage in any artificial tax structuring that is contrary to the intentions of the relevant legislation and guidance. BAE Systems does not tolerate activities designed to facilitate tax evasion offences.

Arm’s-length principles are applied in the pricing of all intra-group transactions of goods and services in accordance with domestic legislative requirements and the Organisation for Economic Co-operation and Development guidelines. The Group seeks to ensure that everything it does is aligned to its commercial operations and has appropriate economic substance. The Group utilises tax reliefs and incentives made available by governments where appropriate.

Relationship with Tax Authorities 

BAE Systems promotes collaborative professional engagement with tax authorities in order to build open, transparent and trusted relationships. Where available in the relevant territory, BAE Systems engages in co- operative working arrangements with tax authorities on the basis that those tax authorities will also work in accordance with, and in the spirit of, such frameworks. 

In such cases, BAE Systems seeks to engage in open and early dialogue with tax authorities to discuss tax compliance and risk, and disclose any significant uncertainties in relation to tax matters. BAE Systems seeks to resolve issues in real time and before returns are filed where possible.

Where a tax authority has a diverging view from BAE Systems on a tax issue, BAE Systems works to resolve issues by agreement. BAE Systems encourages tax authorities to do the same. Where such greement is not possible, BAE Systems shall defend its position as necessary.

Transparency 

BAE Systems is open and transparent with regard to decision-making, governance and tax principles in its business, keeping stakeholders informed as appropriate. BAE Systems actively engages with governments (directly and indirectly through relevant representative bodies) in relation to proposed legislation and tax policy.

The Group is routinely subject to tax audits and reviews which can take a considerable period of time to conclude. Provision is made in the Group’s Financial Statements for known issues based on management’s interpretation of country-specific legislation and the likely outcome of a dispute.

The Group seeks to make fair, accurate and timely disclosures in tax returns, reports and documents that it files with, or submits to, tax authorities.

BAE Systems considers the publication of the tax principles for the BAE Systems group of companies for the year ended 31 December 2025 complies with the requirements of paragraph 16(2) Schedule 19 of Finance Act 2016.