Cochlear : 2023 Tax Contribution Report

Contents

About Cochlear

Tax strategy and governance

Approach to risk management and governance

Attitude towards tax planning

Accepted level of risk in relation to taxation

Approach to engagement with global revenue authorities

International related party dealings

Income taxes disclosed in 2023 Annual Report

Reconciliation of accounting profit to income tax expense

Reconciliation of income tax expense to cash tax paid

Effective tax rates

Tax contribution summary

ATO tax transparency disclosures

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Contents

About Cochlear

Tax strategy and

governance

Income taxes disclosed in

2023 Annual Report

Tax contribution

summary

ATO tax transparency

disclosures

Cochlear commenced operations in 1981 as part of the Nucleus group and in 1995 listed on the Australian Securities Exchange. Today, it is a Top 30 listed Australian company with a market capitalisation of over A$15 billion.

Our goal is to deliver value by helping more people to hear, which contributes to building a healthier and more productive society. Our strategy is focused on improving awareness

of and access to implantable hearing solutions for people indicated for our products.

We are pioneers and global leaders in the development, manufacture and commercialisation of implantable hearing solutions, collaborating in over 100 research programs worldwide to further research into hearing loss.

We invest around 12% of sales revenue each year in research and development (R&D), with over $2.7 billion invested since listing, and we have a portfolio of more than 1,700 patents and patent applications worldwide.

Over the past 40 years we have provided more than 750,000 implant devices to people who benefit from one - or two - of our implantable solutions. And we deliver a lifetime of hearing solutions for recipients, with sound processor upgrades and services to support prior generation products.

Our global headquarters are on the campus of Macquarie University in Sydney, with regional offices in Asia Pacific, Europe and the Americas. We have a global workforce of around 4,800 employees and a deep geographical reach, selling in over 180 countries, with employees based in over 50 countries.

For FY23, 58% of sales revenue was from cochlear implant (Nucleus) products and 12% from Acoustics products. Services revenue, which includes sound processor upgrade and accessories sales revenue, accounted for 30% of total sales revenue. On a regional basis, sales revenue was split:

• Americas (US, Canada and Latin America) - 50% of sales revenue
• EMEA (Europe, Middle East and Africa) - 33% of sales revenue
• Asia Pacific (Australasia and Asia) - 17% of sales revenue

Approximately 95% of revenue in FY23 was generated from countries outside Australia.

For FY23, all cochlear implant manufacture was conducted in Australia with sound processor and acoustics products manufacture occurring in Australia, Sweden, Malaysia and most recently sound processor manufacturing has also commenced in China. There is considerable know how associated with this specialised manufacture and the technology that underpins our products has been developed in Australia and is protected by patents. Our tax strategy is aligned with this holding of intellectual property in Australia.

Contents

About Cochlear

Tax strategy and

governance

Income taxes disclosed in

2023 Annual Report

Tax contribution

summary

ATO tax transparency

disclosures

Approach to risk management and governance

Cochlear operates in a highly regulated global industry in the area of implantable hearing solutions. We must ensure we enter into transactions in a way that does not inhibit our ability to design, develop, manufacture and distribute products globally and which also maintains our reputation with regulators and governments in the countries in which we operate.

The Audit and Risk Committee have approved a Tax Risk Management and Governance Framework which reflects the tax risk strategy and management controls relating to tax risk management and governance.

Global tax and finance teams work together to identify, analyse and evaluate global tax risks, with key global tax risks identified escalated to the Vice President Global Tax and Treasury who is a direct report of, and identifies global tax risks to, the Chief Financial Officer.

Each Audit and Risk Committee has an agenda item on global tax and, where appropriate, matters are reported through to the full Board.

The Audit and Risk Committee approve the Tax Risk Management and Governance Framework annually to satisfy itself that it continues to be sound and effectively identifies material areas of potential risk.

Publication of this statement is regarded as satisfying the statutory obligation under Paragraph 19, Schedule 19, Finance Act 2016 (UK) which prescribes that the UK tax strategy must be published for UK entities of the Cochlear global group. The UK entities to which this strategy applies are Cochlear Europe Limited and Cochlear Research and Development Limited.

Attitude towards tax planning

Our attitude towards tax planning is to ensure that transactions and compliance activities undertaken in Australia and

by subsidiaries overseas have consideration of the Tax Risk Management and Governance Framework. Where appropriate, we will engage external advisors on significant transactions and for review of compliance activities.

Cochlear together with its Australian subsidiaries has formed a tax consolidated group for Australian tax purposes with Cochlear Limited as the head company of the Australian tax consolidated group.

Accepted level of risk in relation to taxation

The level of accepted risk in relation to taxation is to assess the risk appetite of a transaction or activity in accordance with the Tax Risk Management and Governance Framework. The Audit and Risk Committee reviews this approach annually.

Approach to engagement with global revenue authorities

Our approach to engagement with global revenue authorities including but not limited to the ATO, Internal Revenue Service and Her Majesty's Revenue and Customs, is to be compliant with tax legislation and fulfil all tax obligations in accordance with local tax laws and practice.

Our approach is to engage early with global revenue authorities on significant transactions and to ensure cooperative, collaborative and transparent communication.

In this respect, we have signed two Bilateral Advanced Pricing Agreements with the ATO; one with the National Tax Authority of Japan which was recently renewed for a further term of 5 years, and one with the Internal Revenue Service of the United States which has a term of 7 years. Dealings with the UK subsidiary based in London are conducted on similar principles but are not encapsulated in a formal Bilateral Advanced Pricing Agreement.

International related party dealings

Cochlear Limited is the ultimate parent entity of the Cochlear group. Our global headquarters is on campus at Macquarie University in Sydney, Australia, with regional headquarters in Asia Pacific, EMEA and the Americas.

As the global manufacturer and developer of implantable hearing devices, we undertake the majority of manufacturing and R&D activities in Australia. We also conduct manufacturing and R&D activities in other locations via service arrangements with group entities located in Sweden, Malaysia, Belgium, the US and most recently China. All new knowledge and intellectual property generated from R&D activities is owned by Cochlear Limited.

Contents

About Cochlear

Tax strategy and

governance

Income taxes disclosed in

2023 Annual Report

Tax contribution

summary

ATO tax transparency

disclosures

Manufactured product is sold either directly or through headquarter distributors located in the UK, US and Panama and also through distributors located in Asia Pacific.

A summary of our international related party dealings is provided below. All dealings between related parties within the Cochlear group are priced on an arm's length basis in accordance with global transfer pricing laws and OECD guidelines:

• We manufacture the cochlear implant product range at three sites in Australia - Macquarie University and Lane Cove in New South Wales, and Brisbane in Queensland. The manufacture of the acoustic implant product range is carried out in Australia and under contract manufacturing agreements in Sweden and Malaysia. We have also recently commenced manufacturing sound processors in China.
• All intellectual property is owned by Cochlear in Australia with the majority of R&D activities undertaken in Australia. There are R&D capabilities in Sweden, Belgium and the US and contract R&D agreements with the subsidiaries in those regions.
• We have headquarter distributors located in the UK, US and Panama as well as other distributors located across Asia Pacific who purchase product directly from Cochlear for ultimate sale in their regions.
• We operate a repair centre in Malaysia. This entity provides testing, diagnostic and repair of sound processors, logistic activities including packing and shipping, scrapping of devices and related administrative tasks for Cochlear group entities globally.
• We operate Shared Service Centres in Malaysia and Panama. These centres provide support to Cochlear group entities such as customer order entry, service request entry, registration, invoicing, user acceptance testing, customer account set up and maintenance. The centre in Malaysia also provides IT support services to the group.
• We have a captive insurance company in Singapore. It provides captive insurance services to subsidiaries in the Americas, EMEA and Asia Pacific. The captive insurance company is managed by an independent third-party insurance broker.

The following table provides a summary of the nature of activities undertaken by subsidiaries incorporated, and branches located, in jurisdictions outside of Australia:

Note 1 - The subsidiary companies in these countries are treated as Controlled Foreign Companies for Australian income tax purposes and are subject to tax at the Australian corporate tax rate of 30% on any profits generated from any activities between the subsidiaries and Cochlear.