7. Related-party transactions and conflict of interest situations

Transactions with related parties

The power of approving any transaction between the Company and a director or a significant shareholder is reserved to the Board of Directors. Prior to such approval, the Nomination and Remuneration Committee must issue a report on such transactions which entail or might entail any conflicts of interest, on related-party transactions or on transactions which entail the use of corporate assets.

Under no circumstance shall the Board of Directors approve the transaction if a prior report has not been issued by the Nomination and Remuneration Committee evaluating the transaction from the standpoint of market conditions.

In the event of transactions with significant shareholders, the Nomination and Remuneration Committee shall examine it also from the standpoint of an equal treatment for all shareholders.

In the case of transactions within the ordinary course of Company business and which are usually or repeatedly carried out, a generic authorization of the type of transaction and its conditions of execution will suffice.

The Company shall inform of the transactions conducted with directors, significant shareholders and related persons in the half-yearly periodic information and in the Annual Corporate Governance Report, within the scope provided by statute in each case. Likewise, the Company shall include on the notes to the annual accounts information on the transactions carried out by the Company or any companies within the Inditex Group with directors and with those acting on their behalf, whenever they are alien to the ordinary course of trade of the Company or are not carried out in normal market conditions.

The authorization of the Board of Directors shall not be required for those related-party transactions that meet at the same time the following requirements:

i) they are conducted under contracts with standard terms and conditions which apply en masse to many customers;

ii) they are conducted at prices or rates generally established by those acting as suppliers of the good or service in question; and.

iii) their amount is not in excess of 1% of the Company’s annual revenues.

The detail of the transactions carried out by the Inditex Group with related persons (natural or legal), and of significant transactions carried out by Inditex with other entities belonging to the same Group, provided that these are not eliminated in the process of preparing the consolidated financial statements and do not form part of the ordinary business of the Company, is included in the relevant section of the Annual Corporate Governance Report.

During financial year 2014, joint control companies have been consolidated through the equity method and therefore, all the transactions carried out by such companies with the Inditex Group are no longer eliminated during the consolidation process, as they are not proportionally integrated.

Mechanisms to prevent conflicts of interest

The definition of “conflicts of interest” is provided in section 32 of the Board of Directors’ Regulations, set of rules which also lays down the rules governing such situations. Sections 31, 34 and 35 of the Board of Directors’ Regulations address the rendering of professional services in competing companies, the use of corporate assets, the use of non-public Company information for private purpose, and the taking advantage of business opportunities of the Company. On the other hand, section 37 headed: “Duties of information of the director”, establishes the specific topics regarding which Directors must provide information to the Company.

Additionally, section 1 of the Board of Directors’ Regulations provides that the rules of conduct established therein for the Directors shall apply, to the extent that they are compatible with their specific nature, to the senior executives of the Company, more particularly and with the due nuances, the following sections: sections 30 (duty of confidentiality), 32 (conflicts of interest), in connection with the duty of informing the Company, 33 (use of corporate assets), 34 (non-public information), 35 (business opportunities), and 36 (prohibition to make undue influence of the office).

Likewise, with regard to significant shareholders, section 38 of the Board of Directors’ Regulations provides the rules which apply to “Transactions with directors and significant shareholders”.

Among the duties it is entrusted with, it is incumbent on the Nomination and Remuneration Committee to report on the transactions which entail or might entail any conflicts of interests, related-party transactions or transactions which entail the use of corporate assets, and generally, on those topics covered under Chapter IX of the Board of Directors’ Regulations. In light of the report of the Nomination and Remuneration Committee, approval of the transaction, where appropriate, falls on the Board of Directors.

Meanwhile, section 5 of the Internal Regulations of Conduct regarding Transactions in Securities sets forth the principles that affected persons must abide by with regard to conflicts of interest (independence, abstention and confidentiality) and provides that such persons shall undertake in writing to act independently in their activities and to apprise the Code Compliance Office of those conflicts of interest with suppliers, agents and franchisees or external advisors to which they are subject on account of their activities outside the Inditex Group, their family ties, their personal property, or otherwise.

Additionally, section 4.8 of the Code of Conduct and Responsible Practices addresses the situations wherein employees must disclose to the Committee of Ethics the existence of a conflict between their personal interests and those of the Company.