Chipotle Mexican Grill
UK Tax Strategy Report
Background and Chipotle’s Group Overview
Chipotle Mexican Grill, Inc. (“Chipotle”, “the company”, “we”, “us”, or “our”) operates Chipotle Mexican Grill restaurants in 5 countries. We are headquartered in Newport Beach, California.
Chipotle’s restaurants feature a relevant menu of burritos, burrito bowls (a burrito without the tortilla), tacos, and salads. We are passionate about serving great food and providing a great guest experience, and we are a longtime leader and innovator in the food industry. Using high-quality real ingredients, classic cooking techniques, and distinctive interior design, we brought features from the realm of fine dining to the world of quick-service restaurants. As of December 31, 2022, we owned and operated 3,129 Chipotle restaurants throughout the United States, 53 international Chipotle restaurants, and five non-Chipotle restaurants.
Chipotle is subject to a variety of taxes, including corporate income tax on its profits across the globe, as well as franchise, sales and use, VAT, employment, real estate and other taxes. We strive to comply with all applicable laws, including the timely and accurate payment of the taxes that are owed in each country where we operate.
To support transparency of Chipotle’s approach to managing the Company’s tax obligations, this document explains how we consider each of the following:
· Tax governance, risk management and compliance
· Tax planning and acceptable tax risks
· Interactions with Tax Authorities
Tax Governance, Risk Management and Compliance
Chipotle’s global tax organization (“tax organization”) includes qualified individuals whose skills are leveraged to contribute fully to the success of the Company. The tax organization reports to the Vice President, Controller & Financial Reporting (“Controller”) and Chief Financial Officer (“CFO”) and regularly updates the Controller and CFO about significant tax matters including audits, cross border tax risks, and potential tax impacts of business plans. The CFO provides regular tax updates to the Audit Committee of Chipotle’s Board of Directors. These actions accompany development and execution of controls and processes identified as prudent or mandatory to meet external risk management regulations such as Sarbanes-Oxley and FIN 48.
The day-to-day responsibility for the application of the tax strategy and the management of our tax affairs is delegated by the CFO to the Director of Tax. The Director of Tax is supported by a team of qualified and experienced in-house tax and external tax advisors based in the U.S. and other countries in which we operate. Our tax team manages the company’s tax matters on a day-to-day basis.
The tax organization is responsible for ensuring that compliance obligations are understood and has developed and implemented sufficient procedures and controls to understand and manage these obligations and ensure the overall integrity of the various tax reporting. This includes managing our tax filing and financial reporting obligations, relationships with tax authorities, and working with the business on tax related matters. The team works with the relevant business functions to analyze potential transactions and identify, manage and ensure compliance with relevant tax requirements. Material matters are escalated to the CFO. Our tax team obtains external advice where there is a need for specialist guidance and support. This includes, but is not limited to, material or non-routine transactions or areas of uncertainty surrounding the interpretation of tax law.
The company adheres to tax and financial related disclosures and transparency requirements of the United States Securities and Exchange Commission, the New York Stock Exchange and other relevant authorities in each country where we do business.
Tax planning at Chipotle is aligned with the objectives of the business operations and is designed to effectively comply with legal obligations and requirements in every country where Chipotle does business. The tax organization provides analysis of relevant tax issues in key transactions or strategies. We seek to help create clarity and certainty around our tax obligations. We are also committed to comply with the tax law and regulations in which we operate and thus, we ensure that our business model is aligned with OECD guidance and applicable local tax rules. The tax team assesses the appropriate tax treatment of the operating models which are determined by the business. This may include the identification of tax efficiencies, such as use of or application for local tax incentives, reliefs, or exemptions, where legally available and permissible. However, it is not the role of our tax team to determine how the business is operated.
Analysis is performed by in-house tax professionals, with outside specialists utilized where appropriate. This includes situations where there is ambiguity or uncertainty regarding the interpretation of a law, as well as with significant or non-routine transactions.
Approach to Tax Risk
Chipotle’s tax organization seeks to identify and mitigate tax risks. In addition to direct participation in various projects and initiatives, the tax organization is integrated with various department leads that manage risk for the overall Chipotle group. The three key risks and details we consider from a tax perspective include:
· Complexity and changes in legislation - Tax laws are complex, and open to interpretation. Risks can therefore arise in the interpretation of various tax laws and regulations. Such legislation is typically updated on an annual basis. To keep up with these changes, Chipotle ensures that its tax department have access to tax updates and access to specialist training. We also utilize the services of external tax advisors as and when required.
· Tax compliance and reporting risks - We rely on financial and other systems as well as appropriately qualified employees across our operations to analyze, calculate, record, report, and pay our tax liabilities timely and accurately.
· Business operational risks – Business growth, both in scale and complexity, requires ongoing review in context of our tax strategy and obligations. We rely on our business and finance teams to engage with the business and undertake regular reviews of new transactions, major decisions and any changes to our commercial strategies to ensure that all relevant tax matters are identified and addressed in accordance with this tax strategy.
There is no predetermined level of tax risk that Chipotle is willing to accept. Rather, Chipotle makes reasoned decisions that appropriately balance the materiality of risks and benefits associated with transactions. This reflects the high-level objective to remain aligned with the long-term needs of various stakeholders.
Interactions with Tax Authorities
Chipotle is committed to maintaining professional, open and transparent relationships with the tax authorities in countries where we do business, including HM Revenue and Customs (“HMRC”) in the U.K. and the Internal Revenue Services (“IRS”) in the U.S., as well as other state and local tax authorities. We ensure there is adequate access to relevant and necessary information. We strive to comply with the law, and work with tax authorities to explain our position, in order to resolve differences of interpretation in a timely manner. Where we are not able to resolve a difference of opinion, we pursue various dispute resolution mechanisms as appropriate.
For material transactions or tax events, we may engage with tax authorities, including HMRC, in advance of undertaking a transaction to gain certainty and assurance regarding the positions taken.
UK Specific Provision
The publication of this document is regarded as meeting the statutory obligation, under Para 19(2) Schedule 19 of the Finance Act 2016 to publish a tax strategy for the year ended December 31, 2022.
We have an open, honest and positive working relationship with HMRC. In the event of an error is discovered in any of our tax filings we will notify HMRC at the appropriate time and review our internal processes, systems and controls to mitigate any further exposure. We respond clearly and promptly to queries raised, providing detailed information in support of our response. We always seek to come to an agreement with HMRC over differences of opinion regarding the interpretation of law. On new transactions with any significant level of tax risk we will consult with HMRC in advance of undertaking the transaction to ensure cooperative compliance.
By maintaining a positive working relationship with HMRC we feel we are in a good position to facilitate paying the right amount of tax at the right time, so as to minimize our tax risk and have certainty over our tax filings.