4. BOARD OF DIRECTORS’ COMMITTEES

AUDIT AND CONTROL COMMITTEE

COMPOSITION AND PROCEEDINGS

Antonio Abril Abadín, General Counsel and Secretary of the Board, acts as the Secretary-non-member of the Audit and Control Committee.

The Audit and Control Committee shall be made up of a minimum of three and a maximum of seven directors appointed by the Board itself, the majority of whom must be independent directors.

The Chair of the Audit and Control Committee, who must be an independent director, shall be elected for a term that does not exceed four years and must be replaced at the expiry of the aforementioned term. He may be re-elected once a period of one year has elapsed since the date of his/her removal.

The Committee shall ordinarily meet on a quarterly basis in order to review the periodic financial information that has to be given to the Stock Market authorities, as well as the information that the Board of Directors has to approve and include in its annual public documentation. Furthermore, it shall meet each time its Chairman calls it to meet, who must do so whenever the Board of Directors or the Chairman thereof requests the issue of a report or the adoption of proposals and, in any case, whenever appropriate for the successful performance of its functions.

Members of the management team or of the staff of the Company and its group shall be bound to attend the meetings of the Committee and to collaborate with it and make available the information at their disposal when the Committee so requests. Likewise, the Committee may require the attendance of the auditors to its meetings.

For the best performance of its functions, the Audit and Control Committee may obtain the advice of external experts.

REGULATIONS

Article 28 of the Articles of Association, section 15 of the Board of Directors’ Regulations, as well as the Audit and Control Committee’s Regulations set out the regulations governing the Audit and Control Committee. Namely, section 5 of this last set of rules sets forth the mission of the Audit and Control Committee:

“Without prejudice to other tasks it may be entrusted by the Board of Directors, and to other powers it may be reserved by these Regulations, the Audit and Control Committee shall have the following basic responsibilities:

1. To report to the General Meeting of Shareholders on those questions raised regarding matters within the remit of the Audit and Control Committee , and namely, regarding the result of the audit conducted, explaining that it has contributed to the integrity of the financial information, and the role played by the Audit and Control Committee in this process ;
2. To oversee the effectiveness of the internal control system of the Company, the internal audit and the risks management systems, including tax risks, and to review with the auditor the significant weaknesses of the internal control system revealed in the course of the audit, all of which without jeopardising its independence; for such purposes, the Committee may, if appropriate, submit recommendations or motions to the Board of Directors, with the relevant term for follow-up;
3. To oversee the process for preparing and disclosing the regulated financial information regarding the Company and, as the case may be, its Group, reviewing compliance with regulatory requirements, the appropriate delimitation of the consolidation perimeter and the appropriate application of accounting criteria, and to submit recommendations or motions to the Board of Directors for the purposes of safeguarding the integrity of such information;
4. To table to the Board of Directors, for the subsequent submission thereof to the General Meeting of Shareholders, the motions on recruitment, appointment, re-election and replacement of the external auditor, taking charge of the recruitment process pursuant to the provisions of the applicable regulations, as well as the terms and conditions of the agreement to be executed with them and to regularly gather from the external auditor information about the audit plan and its performance, in addition to preserving its independence in the performance of its duties;
5. To liaise with the external auditor in order to receive information on those matters that could represent a threat to its independence, so that the Committee may review them, and on any other matter related to the implementation of the audit process, and, where appropriate, the authorization of any services other than those forbidden, pursuant to the terms of the applicable regulations, as well as on those other communications envisaged by the audit legislation and the auditing standards. At any rate, the Committee shall receive every year from the external auditor, the statement of its independence regarding the entity or those entities directly or indirectly related thereto, as well as the detailed and separate information on any additional services of any manner rendered and the relevant fees received from the above mentioned entities to the external auditor or by the persons, natural or legal related to such external auditor, pursuant to the provisions of the prevailing regulations on the audit activity;
6. To issue on an annual basis, prior to the issue of the auditor’s report, a report expressing an opinion on whether the independence of the auditors or audit firms has been jeopardised. Such report must address at any rate, the reasoned assessment of the provision of each and every additional service referred to in the foregoing paragraph, considered both separately and as a whole, other than the legal audit and regarding the independence system or the regulations on the audit activity;
7. To ensure that the Board of Directors shall present the accounts to the General Meeting of Shareholders in an unqualified audit report and without reservations;
8. To advice beforehand the Board of Directors on all the topics covered by statute, the Articles of Association and the Board of Directors’ Regulations, and namely, on (i) the periodic financial information that the Company must disclose on a regular basis; (ii) the creation or acquisition of shares in special purpose vehicles or entities resident in countries or territories considered tax havens, and (iii) the transactions with related parties;
9. To inform the Board of Directors on such transactions that involve structural and corporate changes that the Company plans to carry out;
10. To evaluate any question regarding non financial risks (including operational, technological, legal, social, environmental, political and reputational risks);
11. To regularly evaluate the appropriateness of the corporate governance system of the Company and oversee compliance thereof, as well as compliance with the internal codes of conduct;
12. To review the social responsibility and the environmental sustainability policies and to oversee compliance thereof;
13. To oversee the strategy of communication and relations with shareholders and investors, including small and medium shareholders;
14. To oversee and evaluate the relations systems with the different stakeholders of the company; and,
15. To coordinate the process of reporting corporate information and information on diversity, pursuant to the applicable regulations and the international standards of reference.”

Meanwhile, the duties entrusted to the Audit and Control Committee in respect of the preparation of the regulated financial information are addressed in section 6:

“With regard to the preparation of the regulated financial information of the Company and its Group, the Committee shall have the following main duties:

1. To oversee the process of preparation and submission and the integrity of the regulated financial information relating to the Company and its Group, ensuring that the half-yearly financial reports and the quarterly management statements are drafted in accordance with the same accounting standards as the annual financial reports and to oversee the review of the interim financial statements requested from the auditor, with the scope and frequency that may be defined, as the case may be;
2. To review compliance with the legal requirements, the appropriate delimitation of the consolidation perimeter and the correct application of the generally accepted accounting principles and international financial reporting standards as may be applicable; and
3. To submit recommendations or motions to the Board of Directors for the purposes of safeguarding the integrity of the financial information;
4. To advise the Board of Directors on any significant change of accounting standard and of any significant risks on the balance sheet or off the balance sheet.”

The powers of the Audit and Control Committee with regard to the audit of the accounts are set out in section 7:

“With regard to the audit of the accounts of the Company and its Group, the Committee shall have the following main duties:

1. To propose to the Board of Directors the selection, appointment, re-election and replacement of the external auditor, taking charge of the recruitment process pursuant to the provisions of the applicable regulations, as well as the terms and conditions of the contract to be executed with them, to be subsequently submitted to the General Meeting of Shareholders for approval;
2. To oversee the independence of the auditors and the absence of any or incompatibility, pursuant to the legislation on auditing. To perform such task, the Committee shall:
   1. Receive from the auditors on an annual basis, the statement on their independence regarding the Company or the companies related thereto, directly or indirectly;
   2. Oversee the hiring of the auditor for services other than financial audit where the amount of the fees to be invoiced is significant, and supervise the terms and the performance of the contracts entered into with the external auditor of the Company for the rendering of such services;
   3. Receive from the auditors detailed and separate information on any manner of additional services rendered, as well as the relevant fees received by the auditors or by the persons or entities related to them, pursuant to the provisions of the regulations on the audit activity;
   4. Verify that the Company and the auditor comply with applicable regulations regarding the provision of services other than the auditing of accounts, the limits on the concentration of the auditor’s business, the rules on professional fees and, generally, all other regulations established in order to ensure the independence of the auditors;
   5. Ensure that the remuneration of the external auditor for his works does not compromise the quality and independence thereof;
   6. In the event of resignation of the auditor, examine the circumstances that may have given rise thereto; and,
   7. Issue on an annual basis and prior to the issue of the auditor’s report, a report setting forth its opinion on whether the independence of the auditor or of audit firms has been jeopardised. At any rate, such report must contain the reasoned assessment of the provision by the external auditor of each and every additional service other than the legal audit, considered both separately and as a whole, and its opinion regarding the independence system of the auditor pursuant to the regulations on the audit activity;
3. To oversee compliance with the audit contract, regularly gathering from the auditor information on the audit plan and its implementation;
4. To review the contents of the auditor’s reports and, where appropriate, of the reports on limited review of interim accounts, as well as other mandatory reports to be prepared by the auditors, prior to the issue thereof, in order to avoid qualified reports, ensuring that the Board of Directors shall present the accounts to the General Meeting of Shareholders in an unqualified audit report and without reservations, and, where appropriate, in the exceptional circumstances where a qualified report is issued, that both the Chair of the Committee and the auditors would clearly explain to the shareholders the contents and scope of such reservations and qualifications;
5. To assess the results of each financial audit and oversee the response of the Senior Executives to their recommendations;
6. To promote that the auditors of the Group’s consolidated accounts shall assume responsibility for the audit work of all or the majority of the companies that form part of such Group; and
7. To ensure that the auditor carrying out the audit of the financial statements or of consolidated accounting documents shall assume full responsibility for the audit report issued, even though the financial statements of the investee companies have been audited by other auditors;
8. To serve as a communication channel between the Board of Directors and the auditors, endeavouring for the latter to have, at least once a year, a meeting with the Board of Directors for the purposes of reporting on the work done and the evolution of the accounting and risk situation of the Company; and,
9. To verify that the change of auditor is disclosed as a relevant fact to CNMV and, where appropriate, that information is given on the eventual existence of any discrepancies with the outgoing auditor and the contents thereof.”

Section 8 of the Audit and Control Regulations sets forth the powers regarding the internal audit function:

“With regard to the Internal Audit function of the Company and its Group, the Committee shall have the following main duties:

1. To ensure the independence and effectiveness of the Internal Audit Function overseeing that it has sufficient resources, both human and material, internal and external, to carry out its duties;
2. To approve the budget of the Internal Audit Department, the Internal Audit Plan and the annual activities report of such Department, ensuring that its activities are mainly focused on significant risks for the Company and its Group, and to receive periodic information regarding the activities carried out by the Internal Audit Department;
3. To report on the appointment and removal of the Chief Audit Officer, after report of the Nomination Committee; and
4. To verify that Senior Executives take into account the findings and recommendations resulting from the reports issued by the Internal Audit Department.”

The powers of the Audit and Control Committee regarding the internal control and risk management policy are addressed in section 9:

“With regard to the internal control and risks management policy of the Company, the Committee shall have the following main duties:

1. To oversee the control and risks management function;
2. To submit recommendations or motions to the Board of Directors, with the relevant term for follow-up;
3. To regularly review the internal control and risks management policy, including tax risks;
4. To ensure that the internal control and risks management policy contains at least:
   1. The different types of risk (including without limitation, operational, technological, financial, legal, reputational and tax related) that the Company is faced with, including among such financial or economic risk, contingent liabilities and other off-balance sheet risks;
   2. The determination of the level of risk that the Company deems acceptable;
   3. The measures planned to reduce the impact of the identified risks, should they materialize; and,
   4. The information and internal control systems that will be used to monitor and manage the aforementioned risks, including contingent liabilities and other off-balance sheet risks;
5. To review the information about the risks that the Group is faced with, and about the risk control systems, that must be included in the Annual Corporate Governance Report, the management report attached to the annual accounts and the interim financial statements and in any other information instruments of the Company; and
6. To evaluate any question regarding non-financial risks (including without limitation operational, technological, legal, social, environmental, political and reputational) that the control policy and the risks management systems must contain.”

The powers of the Audit and Control Committee regarding corporate governance are described in section 10 of its Regulations:

“With regard to the corporate governance policy of the Company and its Group, the Committee shall have the main basic duties:

1. To regularly evaluate the appropriateness of the corporate governance system for the purposes of fulfilling its mission of promoting corporate interest taking into account the lawful interests of the different stakeholders of the company;
2. To oversee compliance with the Internal Regulations of Conduct regarding transactions with Securities, with these Regulations and, generally, with the corporate governance rules of the Company, and to make the relevant motions to improve it;
3. To receive from the Code Compliance Office or, as the case may be, from the Code Compliance Supervisory Board, at least every six months and whenever the Audit and Control Committee may deem it fit for the appropriate exercise of its information functions, information on the degree of compliance with the Internal Regulations of Conduct regarding Transactions in Securities and, namely, with the cases seen, if any, and the resolutions passed;
4. To prepare and table to the Board of Directors for approval, the Annual Corporate Governance Report; and
5. To oversee the operation of the Company’s website with regard to the posting of information on corporate governance included in section 42 of the Board of Directors’ Regulations.”

Section 11 of the Audit and Control Regulations sets forth the powers regarding compliance with internal regulations:

“With regard to compliance with the internal regulations of the Company, the Committee shall have the following main duties:

1. To establish and oversee the mechanisms required to allow all the Group’s employees, manufacturers, suppliers or third parties with a direct relationship and a lawful business or professional interest, to report with all due guarantees of confidentiality, indemnity and in accordance with the regulations on data protection, any potential breach of the Code of Conduct and Responsible Practices, the Code of Conduct for Manufacturers and Suppliers and the remaining internal regulations of the Group;
2. To receive from the Committee of Ethics at least every six months and whenever the Audit and Control Committee may deem it fit for the appropriate exercise of its functions, information on the degree of compliance with the Code of Conduct and Responsible Practices, on reports of any potential breach of the Code of Conduct for Manufacturers and Suppliers, and, generally, on the enforcement of the regulatory compliance system of the Company, and to submit motions to the Board of Directors for the adoption of measures and policies seeking to improve compliance with such model; and
3. To receive information and, where appropriate, issue reports on the disciplinary measures that are intended for members of the senior management of the Company.”

In turn, the powers of the Committee regarding corporate social responsibility are addressed in section 12:

With regard to the corporate social responsibility of the Company and its Group, the Committee has the following main duties

1. To oversee the corporate social responsibility policy, ensuring that it focuses on building value;
2. To follow up the strategy and practices of such social responsibility and to evaluate the degree of compliance thereof;
3. To verify the process of reporting corporate information and information on diversity pursuant to the applicable regulations and the international standards of reference; and
4. To receive from the Sustainability Department, at least once a year and whenever the Audit and Control Committee may deem it fit for the appropriate exercise of its functions, information on the social responsibility policy and namely on the following topics:
   1. Compliance with the Code of Conduct for Manufacturers and Suppliers, especially underscoring the result of the social audits carried out, directly or indirectly, by the Company for the purposes of ensuring the enforcement of human and social rights throughout its production line;
   2. Social investment of the Company in the areas of education, employment and humanitarian relief, or in any other area it may determine; and
   3. Compliance with the health and safety standards of the products marketed by the Company.”

The powers regarding environmental sustainability are addressed in section 13:

“With regard to the environmental sustainability of the Company and its Group, the Committee has the following main duties:

1. To oversee the environmental sustainability policy of the Company, ensuring that it focuses on building value;
2. To follow up the strategy and the practices of the environmental sustainability policy and to evaluate the degree of compliance thereof;
3. To receive from the Sustainability Department at least once a year and whenever the Audit and Control Committee may deem it fit for the appropriate exercise of its functions, information on the environmental sustainability policy and namely on the fulfillment of the goals of the Strategic Environmental Plan from time to time in force.”

The powers of the Audit and Control Committee regarding tax issues are covered in section 14:

“With regard to tax issues of the Company and its Group, the Committee has the following main duties:

1. To advice beforehand the Board of Directors on the creation or acquisition, as the case may be, of interests in special vehicles or entities resident in countries or territories considered tax havens;
2. To receive from the Company’s head of tax an update for the Board of Directors prior to the statement of the annual accounts and the filing of the Corporate Tax return, information on tax criteria followed by the Company during the financial year, and on the degree of compliance with the Code on Good Tax Practices; and,
3. To inform the Board of Directors, based upon the information received from the Company’s head of tax policies applied and, in the case of transactions or matters which must be referred to the Board of Directors for approval, on the tax consequences thereof, when they represent a relevant factor.”

Finally, other powers entrusted to the Audit and Control Committee are included in section 15:

“Additionally, the Committee has the following duties:

1. To oversee the strategy of communication and relations with shareholders and investors, including small and medium shareholders;
2. To oversee and evaluate the relations systems with the different stakeholders of the Company;
3. To inform the Board of Directors on transactions that the Company or the companies comprising the corporate Group intend to carry out with the directors or with shareholders who hold a significant stake or who have proposed the appointment of any director of the Company, or with their respective related parties, from an arm’s length perspective and in accordance to the principle of equal treatment shareholders;
4. To issue a report on transactions which entail structural and corporate changes that the Company intends to carry out, reviewing the economic terms and the accounting impact thereof, and namely, where appropriate, the proposed exchange ratio; and
5. To prepare an annual report on the proceedings and activities of the Audit and Control Committee.”

In addition, two Committees report periodically to the Audit and Control Committee:

• The Code Compliance Supervisory Board: composed of the Executive Chairman of the company, who chairs it; the General Counsel who is also the Code Compliance Officer; the Capital Markets Director, and the Chief Human Resources Officer. The Code Compliance Supervisory Board is responsible for promoting knowledge and ensuring compliance with the Internal Regulations of Conduct regarding Transactions in Securities of Inditex and its Corporate Group in areas regarding Securities Markets, (the “IRC”).
• The Committee of Ethics: made up of the General Counsel and Code Compliance Officer, who chairs it; the Chief Audit Officer; the Chief Human Resources Officer and the Chief Sustainability Officer. The Committee of Ethics ensures compliance with the Code of Conduct and Responsible Practices and the Code of Conduct for Manufacturers and Suppliers of the Inditex Group.

ANNUAL ACTIVITIES REPORT OF THE AUDIT AND CONTROL COMMITTE

A report on the activities of the Audit and Control Committee is issued on a yearly basis. Said report is available on www.inditex.com.

PROCEEDINGS OF THE AUDIT AND CONTROL COMMITTEE: MEETINGS HELD, BUSINESS TRANSACTED, REPORTS AND ATTENDEES

During financial year 2016, the Audit and Control Committee met six times. Its main proceedings during the year are summarized below:

MAIN ACTION LINES

During financial year 2016, the main activities of the Audit and Control Committee have focused on the following:

A. Periodic financial information, annual accounts and audit report

The Audit and Control Committee reviews Inditex’s economic and financial information before it is approved by the Board of Directors.

To do so, prior to the stating of the quarterly, half-yearly or annul financial statements, the Audit and Control Committee also meets with the Company’s Management to review the enforcement of the accounting standards, the estimates made upon stating the financial statements, etc.,

Additionally, the Committee, which is entirely made up of non-executive directors, meets with the external auditors for the purposes of reviewing the Company’s annual accounts and certain periodic financial information, reviewing the fulfilment of legal requirements and the appropriate use of generally accepted accounting standards upon stating the annual accounts.

The Audit and Control Committee reviewed on 7 March 2016 the results for FY2015. It reviewed the quarterly results of FY2016 and the relevant Results Releases and Press Releases in the meetings held on 13 June (1Q), 19 September (2Q) and 12 December (3Q). Such results – and the respective Results Releases and Press Releases – were provided by the Board of Directors to the market and its supervisory boards on a quarterly basis pursuant to the Period Public Information (PPI) format.

Likewise, the annual accounts and management reports, both individual and consolidated, and the Audit Report, all of them for FY2015, were also reviewed. The Committee verified that an unqualified Audit Report was issued.

B. Effectiveness and independence of Financial Auditors

The audit conducted during FY2015 was reviewed at the meeting of the Audit and Control Committee held on 7 March 2016, with the attendance of the external auditors who had been previously called to attend.

The work done by external auditors consisted of auditing the consolidated financial statements of the Group as at 31 January 2016 and auditing of the individual financial statements of certain Group companies, also as at 31 January 2016. Likewise, they issued a limited review report on the financial statements.

Additionally, the main issues, classified in international, domestic, accounting issues and other less relevant ones, were reviewed.

The Audit and Control Committee approved on 7 March 2016 the report on the independence of the external auditors of the Company, which also addressed the provision of additional services other than auditing of annual accounts.

C. Internal Audit

The Chief Audit Officer and the external auditors attended the meetings of the Audit and Control Committee throughout FY2016 and took an active part therein.

Different issues within the Committee’s remit were addressed in such meetings and the Committee oversaw the work plan of the Internal Audit Department, and approved its budget and its activities report.

D. External auditors

Following best practices in the field of corporate governance, members of the Audit and Control Committee met with the external auditors in the meetings held on 7 March, 13 June and 19 September 2016, without any member of the Management being present, to deal with different issues within its remit.

Moreover, external auditors attended the meeting of such Committee held on 12 December 2016, especially invited to do so by the Audit and Control Committee, to address the audit plan for FY2017.

E. Compliance and good corporate governance

Throughout financial year 2016, the Audit and Control Committee gave a favourable report on a number of policies, designed to meet the recommendations of the Good Governance Code, other regulatory development and recommendations in the fields of reference, and the internal regulations of Inditex.

Such policies, listed below, shall be addressed in detail in the respective section of this Annual Report:

1. Amendment of the Internal Audit Charter dated 7 March 2016.
2. Review of the internal regulations of the Company: By-laws, Board of Directors’ Regulations and Audit and Control Committee’s Regulations, dated 13 June 2016.
3. Amendment of the Internal Regulations of Conduct regarding Transactions in Securities dated 18 July 2016.
4. Compliance Function: Zero Standard, Criminal Risk Prevention Model (Criminal Risk Prevention Policy, Procedure and Scoping Matrix) dated 18 July 2016.
5. Procedure to contract an auditor for the provision of additional services other than auditing of annual accounts dated 18 July 2016.
6. Policy on Official Internet and Social Networks Accounts and Profiles of the Inditex Group dated 19 September 2016.
7. Review of the Corporate Social Responsibility Policy and the Environmental Policy on 19 September 2016.
8. Compliance Policy and Policy on Human Rights, dated 12 December.

All such policies and regulations were tabled by the Audit and Control Committee to the Board of Directors which approved them in the relevant meetings. With regard to the Articles of Association, the Board of Directors’ Regulations and the Audit and Control Committee’s Regulations, the approval of all three sets of rules was conditional upon the approval thereof by the Annual General Meeting, which took place on 19 July 2016.

F. Risks Map

The Audit and Control Committee acknowledged the Risks Map of the Company in the meeting held on 18 July 2016.

G. Annual Corporate Governance Report

The Audit and Control Committee approved on 7 March 2016 the Annual Corporate Governance Report for FY2015, drafted as regards its format, contents and structure, in accordance with the provisions of Circular 5/2013 of 12 June of CNMV. The Annual Corporate Governance Report was submitted by the Committee to the Board of Directors which approved it on 8 March 2016, and subsequently sent to the CNMV as a relevant fact.

H. Annual Report

The Committee issued a favourable report on the Annual Report for FY2015 in the meeting held on 13 June 2016. Information on the activities of Inditex and its Group of companies over the last years, and namely during FY2015 with regard to three areas: financial, social and environmental, was provided in such Annual Report.

The Annual Report has been prepared taking into account the principles established in the G4 Guide to Sustainability Reporting of the Global Reporting Initiative (GRI), the principles established in the International Integrated Reporting Framework, and AA1000 Accountability Principles Standard 2008 (AA1000APS). The results of this verification demonstrate that the application level (In Accordance – Exhaustive) declared for the GRI Guide (G4) is appropriate. Equally, a selection of relevant indicators was reviewed by KPMG Asesores in accordance with standard ISAE 3000.

I. Review of the reports of the Committee of Ethics and the Code Compliance Office

The Audit and Control Committee reviewed and approved the Annual Report of the Committee of Ethics for FY2015 in the meeting held on 7 March 2016 and the half-yearly report of such body for the first half of FY2016 in the meeting held on 19 September 2016.

The issues reviewed in such reports include, but are not limited to, the enforcement of the Code of Conduct and Responsible Practices and of the Code of Conduct for Manufacturers and Suppliers, with a detail of the cases seen by the Committee of Ethics, the proceedings of such Committee, the resolutions pronounced, the results of the supervision of the Manual on Criminal Risks Prevention of the Inditex Group, and the proceedings to implement the Corporate Compliance System at domestic and international level (disclosure and communication of the Corporate Compliance System, proceedings related to the acceptance of the Code of Conduct and Responsible Practices, and training with regard to the Corporate Compliance System).

J. Review of the reports of the Code Compliance Supervisory Board and the Code Compliance Office

The Audit and Control Committee reviewed the quarterly reports prepared by the Code Compliance Office in respect of the enforcement of the Internal Regulations of Conduct regarding Transactions in Securities of Inditex and its corporate group (hereinafter, the “IRC”) pursuant to the provisions of section 26.4 thereof, and the half-yearly reports issued by the Code Compliance Supervisory Board in respect of measures taken to promote knowledge and ensure compliance with the provisions of the IRC, pursuant to the provisions of section 25.5 thereof.

K. Related-party transaction

The Audit and Control Committee gave a favourable report to the two related-party transactions below, in the meeting held on 13 June 2016:

1. Provision of certain services by one Group company to a company related to three directors; and
2. Sale of assets of Inditex to a company related to three directors.

Both transactions were authorized by the Board of Directors in the meeting held on 14 June 2016.

L. Conflict of interest situations

Pursuant to the provisions of section 229 of the Companies Act, as amended by act 3/2014 of 3 December, whereby such Act was amended to improve corporate governance, directors have not disclosed any conflict of interest situation, either direct or indirect, that they or any person related thereto might have any interest in the controlling company. One director reported to the Board of Directors a potential conflict of interest situation, which was acknowledged by said body. Such situation has not materialized during the year.

M. Report on its activities

The Audit and Control Committee issued the annual report on its activities on 13 June 2016. It was published in the 2015 Annual Report and it is available on www.inditex.com

N. Report on tax policies

Pursuant to the terms of the Company’s Tax policy, the Audit and Control Committee acknowledged in meeting held on 7 March 2016 the tax policies pursued during financial year 2015.

MAIN RELATIONSHIPS OF THE AUDIT AND CONTROL COMMITTEE

A. With the General Meeting of Shareholders

The Chair of the Audit and Control Committee is available to the shareholders at the Annual General Meeting in order to address those questions raised by the same with regard to matters within its remit, pursuant to the provisions of statute, the Articles of Association, the Board of Directors’ Regulations and the Audit and Control Committee’s Regulations.

B. With the Board of Directors

At the beginning of each meeting of the Board of Directors, the Chair of the Audit and Control Committee apprises all Directors on the main business transacted in the last meeting of the Committee.

C. With the advisory Committees of the Board of Directors

Directors sitting on the Audit and Control Committee also sit on the Nomination Committee and on the Remuneration Committee.

D. With the Executive Chairman and the Senior Executives

For the purposes of permitting the Audit and Control Committee to be directly apprised of major business concerns, the Committee encourages the participation in its sessions of the Executive Chairman and of the executives and officers of the Company to explain their view on certain issues directly linked with the field of responsibility of the Committee and which are recurrent.

Additionally, the Committee may call any employee or officer of the Company and even arrange for their attendance without any other officer being present.

E. With the General Counsel’s Office

The General Counsel and Secretary of the Board, in his capacity as Code Compliance Officer regularly informs the Audit and Control Committee on the degree of compliance with the Internal Regulations of Conduct regarding Transactions in Securities and in general, on the degree of enforcement of the rules of the company on corporate governance.

Additionally, the General Counsel and Secretary of the Board, in his capacity as Chair of the Committee of Ethics regularly advices the Audit and Control Committee on the enforcement of the Code of Conduct and Responsible Practices and the Code of Conduct for Manufacturers and Suppliers; the outcome of the supervision of the Manual on Criminal Risks Prevention of the Inditex Group and the proceedings undertaken to implement the Corporate Compliance system.

F. With the Internal Audit Department

The Internal Audit Department, ensures, under the supervision of the Audit and Control Committee, the good operation of the information and internal control systems. Internal Audit is a centralized function included in the current organizational structure by means of a direct link to the Board of Directors, achieved through functional reporting to its Chair and operational reporting to the Executive Chairman.

The Chief Audit Officer (CAO), being ultimately responsible for the Internal Audit function, regularly apprises the Audit and Control Committee of the annual Internal Audit work plan, as well as of the assignments carried out in the various auditing areas.

Meanwhile, the Audit and Control Committee oversees the Internal Audit Department, approving its budget, the Internal Audit Plan, the annual activities report and the resources of the Department to carry out its tasks as well as the contents of its proceedings.

G. With the external auditors

The relationship of the Board of Directors of the Company and the external auditors of the Group is channeled through the Audit and Control Committee.

Without prejudice to the annual meeting between external auditors and the Board of Directors, the former attends the meetings of the Committee wherein the Periodic Financial Information which the Board of Directors needs to approve and disclose on a half-yearly basis is subject to review.

In addition, the Committee tables to the Board of Directors, to be subsequently submitted to the Annual General Meeting, the motions on the appointment, re-election and replacement of the external auditors, as well as the terms for their engagement and the scope of their professional mandate. Likewise, the Committee oversees the enforcement of the audit contract; it evaluates the results of each audit and supervises the terms and enforcement of such contracts entered into with the auditors for the performance of assignments other than those covered by the audit contract, all of which is pursuant to the provisions of section 15 of the Board of Directors’ Regulations and sections 8 and 30 of the Audit and Control Committee’s Regulations.

Finally, in the meeting held on 18 July 2016, the Audit and Control Committee approved the Procedure to contract an auditor for the provision of additional services other than auditing of annual accounts whereby, further to the approval thereof, the prior authorization of the Audit and Control Committee shall be necessary before any of Inditex’s areas or departments may engage the auditors to provide services other than auditing. Additionally, a list of services which under no circumstances may be rendered by external auditors, is included in such Procedure.

H. With the external advisors

In order to receive assistance in the performance of their duties, non-executive directors may request that legal, accounting, financial or other experts be engaged at the Company’s expense. The assignment entrusted to such external advisors must necessarily address specific issues of certain weight and complexity that the above referred directors might face in the discharge of their duties.

NOMINATION COMMITTEE

COMPOSITION AND PROCEEDINGS

Mr Antonio Abril Abadín, General Counsel and Secretary of the Board, acts as Secretary non-member of the Audit and Control Committee.

The Nomination Committee shall be made up of a minimum of three and a maximum of seven non-executive directors appointed by the Board of Directors, a majority of whom must necessarily be independent directors.

The Nomination Committee shall meet at least once a year and each time that the Board of Directors or the Chairman thereof calls it. The Chairman of the Board of Directors shall call the Nomination Committee each time that the Board or its Chairman requests the issuing of a report or the adoption of proposals within its remit and, at any rate, whenever this is suitable for the successful performance of its functions.

Ordinary meetings shall be called by letter, fax, telegram or e-mail and the meeting notice shall be authorized by the signature of the Chair. A valid quorum for Committee meetings shall be established when at least half plus one of its members, present or represented, are in attendance. The Committee may also pass resolutions in writing, without holding a meeting, pursuant to statutory provisions.

REGULATIONS

Article 29 of the Articles of Association, section 16 of the Board of Directors’ Regulations, and the Nomination Committee’s Regulations set out the regulations governing the Nomination Committee.

Namely, section 5 of this last set of rules sets forth the mission of the Nomination Committee:

“Without prejudice to other tasks it may be entrusted by the Board of Directors, and to other powers it may be reserved by these Regulations, the Nomination Committee shall have the following basic responsibilities:

1. To evaluate the responsibilities, knowledge and experience required on the Board of Directors. For such purposes, it shall define the functions and qualifications required of candidates who must fill each vacancy, and evaluate the time and contribution required for them to effectively discharge their duties;
2. To set a representation target for the least represented gender on the Board of Directors and to provide guidance on how to reach such target;
3. To ensure that upon filling new vacancies or appointing new directors, selection procedures ensure the non-existence of any manner of discrimination;
4. To table to the Board of Directors the motions on the election of independent directors to be appointed through the co-option procedure, or to be submitted to the General Meeting of Shareholders, as well as the motion for the re-election or removal of said directors by the General Meeting of Shareholders;
5. To issue a report regarding the motions to elect the remaining directors prior to their appointment through the co-option procedure or to be submitted to the General Meeting of Shareholders, as well as the motions for their re-election or removal by the General Meeting of Shareholders;
6. To issue a report regarding the motions to appoint and to remove senior executives;
7. Without prejudice to the responsibilities of the Lead Independent Director, should there be any, to review and arrange for the succession of the Chairman of the Board of Directors and of the chief executive of the Company and, where appropriate, to raise motions to the Board of Directors in order for such succession to take place in an orderly and planned manner.”

Meanwhile, section 6 describes the powers of such Committee regarding the selection of prospective directors:

“With regard to the selection of directors, the Committee shall have the following main duties:

1. To issue a report on the directors’ selection policy approved by the Board of Directors and verify on an annual basis compliance thereof;
2. To set up and review the criteria that must be adhered to regarding the composition of the Board or Directors and to select the prospective candidates. For such purposes, the Committee shall define the duties and qualifications required of candidates that must fill each vacancy, based upon the requirements of the Board of Directors and the areas that need to be reinforced;
3. To ensure that, upon filling new vacancies or appointing new directors, selection procedures shall ensure the absence of any manner of discrimination. Namely, to set a representation target for the least represented gender on the Board of Directors and to provide guidance on how to reach such target;
4. To select the prospective candidates to be appointed, where appropriate, directors of the Company, assessing their required ability, qualifications, knowledge and experience and establishing the absence of any disqualifications or prohibitions and the circumstances required for them to qualify as a given class of directors and submit, therefore, its motions or reports, where appropriate, to the Board of Directors for their appointment through the co-option method or to be submitted to the decision of the General Meeting of shareholders;
5. To issue a report on the motions that corporate directors may submit regarding the appointment of their representatives natural persons;
6. To report on the appointment of internal offices of the Board of Directors and its Committees (Chairman, Deputy Chairman/Chairmen, Chief Executive Officer, Lead Independent Director, Secretary and Deputy-Secretary(ies));
7. To propose to the Board of Directors such members that must sit on each Committee;
8. To verify, where appropriate, the information provided in the Annual Corporate Governance Report about the reasons why certain proprietary directors may have been appointed, at the behest of any shareholders whose stake is below to the minimum stake that qualifies as significant under the prevailing regulations in force or why certain formal requests of presence in the Board of Directors made by shareholders whose stake is the same or higher than others at whose request proprietary directors may have been appointed, have not been attended; and
9. Without prejudice to the responsibilities of the Lead Independent Director, should there be any, to review and arrange for the succession of the Chairman of the Board of Directors and of the chief executive of the Company and, to table, where appropriate, proposals to the Board of Directors for such succession to take place in an orderly and planned manner.”

The powers regarding assessment and re-election of directors are addressed in section 7 of such Regulations:

“With regard to the assessment and re-election of directors, the Committee shall have the following main duties:

1. To establish and oversee an annual programme for evaluating the performance of the Board of Directors, its Chairman, its delegated bodies and its supervisory and control committees. For such purposes, the Committee may gather such information and/or documentation as it may deem necessary or expedient;
2. To take part in the annual process of evaluation of performance of the Chairman of the Board of Directors pursuant to the provisions of the Company’s corporate governance system;
3. To report on an annual basis to the Board of Directors on the evaluation of the Board of Directors itself, the Committee, the directors, and of the performance of the chief executive of the Company;
4. To verify, where appropriate, the independence of the advisor which assists the Board of Directors with the evaluation process;
5. To examine, prior to the end of the term for which a director has been appointed, the advisability of the director’s re-election, as well as the director’s continuance, if applicable, on the committees of the Board of Directors of which such director is a member;
6. To verify that the director to be re-elected continues to comply with the general requirements applicable to all directors of the Company pursuant to law and the Company’s corporate governance rules, as well as assess the quality of work, the dedication to office and the availability of the director in question during the preceding term of office; and
7. To submit to the Board of Directors its motion (in the case of independent directors) or report (in the case of the remaining directors) regarding the re-election of directors by the General Meeting of Shareholders.”

In turn, section 8 thereof covers the powers regarding removal and dismissal of directors:

“With regard to the removal and dismissal of directors, the Committee shall have the main duties of submitting to the Board of Directors the motion regarding the removal or, where appropriate, issuing a report on the motion of removal of directors by the General Meeting of Shareholders on account of the existence of grounds for resignation or dismissal pursuant to Statute or the corporate governance rules of the Company.”

Finally, other powers entrusted to the Nomination Committee are included in section 9 of the Nomination Committee’s Regulations:

“Additionally, the Committee shall have the following main duties:

1. To issue a report on the appointment and removal of the Internal Audit Director, after report of the Audit and Control Committee;
2. To issue a report on the motions to appoint and remove senior executives;
3. To issue such reports and carry out such proceedings that fall within its remit, pursuant to the corporate governance system of the Company, or which are required by the Board of Directors or its Chairman; and,
4. To issue a report before the authorization or release by the Board of Directors of the obligations arising from the duty of loyalty of directors, when this does not fall within the remit of the General Meeting of shareholders.”

ANNUAL ACTIVITIES REPORT OF THE NOMINATION COMMITTEE

The Nomination Committee issues a report on its activities during the year on an annual basis. Such report is available on www.inditex.com.

PROCEEDINGS OF THE NOMINATION COMMITTEE: MEETINGS HELD, BUSINESS TRANSACTED, REPORTS AND ATTENDEES

Below is a summary of the main activities of the Nomination Committee from 1 February 2016 through 31 January 2017 regarding its powers:

MAIN ACTION LINES

During FY2016, the most relevant proceedings of the Nomination Committee have focused on the following issues:

A. Appointments

In the meeting held on 13 June 2016, the Committee gave a favourable report to the ratification and appointment of Pontegadea Inversiones, S.L., as non-executive proprietary director, and to the motion to appoint Ms Flora Pérez Marcote as the legal representative of Pontegadea Inversiones, S.L. on the Board of Directors.

Likewise, during that same meeting, the Nomination Committee drafted the motion to appoint Ms Denise Patricia Kingsmill as non-executive independent director and member of the Audit and Control Committee, the Nomination Committee and the Remuneration Committee.

The pertaining reports issued by the Nomination Committee were made available to the shareholders on the corporate website (www.inditex.com) from the date of the notice calling the Annual General Meeting.

Prior to such appointments, the Nomination Committee had approved an explanatory report on the prior analysis of board needs for the purpose or re-electing or appointing Directors.

In the meeting held on 18 July 2016, the Nomination Committee acknowledged the removal of Ms Irene R. Miller, non-executive independent director who stepped down from the Board as a result of the expiry of her term of office. During that same meeting, the Committee gave a favourable report to the appointment of Mr José Luis Durán Schulz as Chair of the Audit and Control Committee.

B. Assessment

Pursuant to the provisions of the Board of Directors’ Regulations and the Nomination Committee’s Regulations, and in line with the recommendations of the Good Governance Code of Listed Companies, approved by CNMV and with Programme approved on 2 December 2015, the Nomination Committee proposed in the meeting held on 20 September 2016 to submit to the Board of Directors the supervisory efforts of the “Programme for evaluating the performance of the Board of Directors, the Directors, the Committees and the Executive Chairman”. Such programme covers the establishment and annual supervision of the evaluation of the performance of the delegated bodies and the supervision and control committees of the Board of Directors.

Likewise, in accordance with Inditex’s internal regulations and best practices in the field of corporate governance, the Nomination Committee approved in the meeting of 13 December 2016 the report on the evaluation of the proceedings of the Board of Directors, the Directors, the Nomination Committee and of the performance of its members and the Executive Chairman. This report went on to be approved by the Board of Directors in the meeting held on 13 December 2016.

The outcome of the evaluation conducted during FY2016 has been very positive as regards the issues assessed, including the qualification and structure, the duties, the effectiveness and the proceedings, planning and organization of the meetings of the Board of Directors, the Audit and Control Committee, the Nomination Committee, the Remuneration Committee, as well as the contributions and performance of Independent Directors and of the Executive Chairman.

MAIN RELATIONSHIPS OF THE NOMINATION COMMITTEE

A. With the Board of Directors

At the beginning of each meeting of the Board of Directors, the Chair of the Nomination Committee reports on the main business transacted in the last meeting of the Committee.

B. With the advisory Committees of the Board of Directors

Directors sitting on the Nomination Committee also sit on the Audit and Control Committee and on the Remuneration Committee.

C. With the Executive Chairman and with Senior Executives

For the purposes of allowing the Nomination Committee to be directly apprised of major business concerns, the Committee encourages the presence in its meetings of the Executive Chairman and of the different officers and supervisors of the business areas of the Company, so that they are able to explain their view on issues directly linked with the remit of the Committee and which are recurrent in its meetings.

D. With the Lead Independent Director

Mr. Rodrigo Echenique Gordillo, the Lead Independent Director is also a member of the Nomination Committee.

E. With the Human Resources Department

In order to keep the Nomination Committee duly and permanently informed, the Human Resources Department regularly apprises the Committee of the changes, if any, in the global talent management and career development programmes, and of the succession plans.

F. With the external advisors

In order to receive assistance in the performance of their duties, non-executive directors may request that legal, accounting, financial or other experts be engaged at the Company’s expense. The assignment entrusted to such external advisors must necessarily address specific issues of certain weight and complexity that the above referred directors might face in the discharge of their duties.

During FY2016, the Committee has been advised by the firm Spencer Stuart, an independent external consultant, which has assisted it with the evaluation of the Board of Directors, its members and its Committees.

REMUNERATION COMMITTEE

COMPOSITION AND PROCEEDINGS

The Remuneration Committee shall be made up of a minimum of three and a maximum of seven non-executive directors appointed by the Board of Directors, a majority of whom shall be independent directors.

The Remuneration Committee shall meet at least once a year, and each time that the Board of Directors or the Chairman thereof calls it; the Chairman of the Board of Directors shall call the Remuneration Committee each time that the Board or its Chairman requests the issuing of a report or the adoption of proposals within its remit and, in any case, whenever this is required for the successful performance of its functions.

Ordinary meetings shall be called by letter, fax, telegram or e-mail and the call shall be authorized by the signature of the Chair or the Secretary. A valid quorum for Committee meetings shall be established when at least half plus one of its members, present or represented, are in attendance. The Committee may also pass resolutions in writing, without holding a meeting, pursuant to statutory provisions.

REGULATIONS

Article 30 of the Articles of Association, section 17 of the Board of Directors’ Regulations, and the Remuneration Committee’s Regulations set out the regulations governing the Remuneration Committee.

Namely, section 5 of this last set of rules sets forth the mission of the Remuneration Committee:

“Without prejudice to other tasks it may be entrusted by the Board of Directors, and to other powers it may be reserved by these Regulations, the Remuneration Committee shall have the following basic responsibilities:

1. To propose to the Board of Directors policies on remuneration of the directors and senior executives as well as the regular review and update thereof;
2. To propose to the Board of Directors the system and amount of the annual remuneration of directors, to be submitted to the General Meeting of Shareholders, as well as the individual remuneration of executive directors and the remaining basic terms and conditions of their contracts, including the eventual compensation or indemnities which may be payable in the event of removal, pursuant to the provisions of the Company’s corporate governance system and the remuneration policy for directors approved by the General Meeting of Shareholders;
3. To propose to the Board of Directors the basic terms and conditions of the contracts of senior executives;
4. To verify that the remuneration policy fixed by the Company is observed; and
5. To ensure that no eventual conflict of interest situation would affect the independence of the external advice given to the Committee.”

Meanwhile, section 6 provides the powers regarding remuneration and remuneration policy for directors and senior executives:

“With regard to remuneration, remuneration policy for directors and senior officers, the Committee shall have the following main duties:

1. To regularly review the remuneration policy for directors and senior executives, including share based remuneration systems and the application thereof and to ensure that their individual remuneration is proportional to that of the remaining directors and senior executives of the Company;
2. To propose the individual remuneration of executive directors and the remaining terms and conditions of their contracts, to be approved by the Board of Directors, including any eventual compensation or indemnity which may be payable in the event of early removal from office and the amounts to be paid by the Company as insurance premiums or contributions to savings schemes, pursuant to the provisions of the internal regulations of the Company and to the remuneration policy approved by the General Meeting of Shareholders;
3. To prepare and submit to the Board of Directors, for approval, the Annual Report on Remuneration of Directors, and to verify the information on the remuneration of directors and senior executives provided in the corporate documents, the notes to the annual accounts and the interim financial statements of the Company; and
4. To propose to the Board of Directors the cancellation of payment or, if appropriate, the refund of variable items which make up the remuneration of directors based upon results, where such items have been paid on the basis of information later shown clearly to be inaccurate; likewise, to propose the termination of the relation with the relevant supervisor(s) and the filing of the relevant claims.”

ANNUAL ACTIVITIES REPORT OF THE REMUNERATION COMMITTEE

The Remuneration Committee issues a report on its activities during the year on an annual basis. Such report is available on www.inditex.com.

PROCEEDINGS OF THE REMUNERATION COMMITTEE: MEETINGS HELD, BUSINESS TRANSACTED, REPORTS AND ATTENDEES

Below is a summary of the main activities of the Remuneration Committee from 1 February 2016 through 31 January 2017 regarding its powers:

MAIN ACTION LINES

During FY2016 the most relevant proceedings of the Remuneration Committee have focused on the following issues:

A. Remuneration of the Executive Chairman

The Remuneration Committee approved in the meeting held on 7 March 2016 the motion to be submitted to the Board of Directors, regarding the remuneration of the Executive Chairman in respect of the following issues:

1. The determination of the pluri-annual variable remuneration accrued during 2015;
2. The determination of the pluri-annual variable remuneration accrued during FY2015 in the framework of the 2103-2016 Long Term Performance Cash Plan;
3. The remuneration for FY2016; and
4. The contract with the Executive Chairman.

Such motion was approved by Board of Directors in the meeting held on 8 March 2016.

B. Annual Report on Remuneration of Directors for FY2015

Pursuant to the regulations then in force and the Recommendations of the CBG, and on the advice of external consultant Towers Watson, the Committee approved on 7 March 2016 the Annual Report on the Remuneration of Directors for FY2015.

Such report was tabled to the Board of Directors, who approved it on 8 March 2016, and sent it to CNMV as a relevant fact.

It was subsequently submitted to the advisory say-on-pay vote of the Annual General Meeting last 19 July 2016 and approved with an aggregate 98.39% of votes for.

C. Remuneration of Senior Executives

The Committee gave a favourable report to the remuneration of Senior Executives in the meeting held on 7 March 2016, and submitted it to the Board of Directors, which approved it on 8 March 2016.

D. Long-term Incentive Plan

The Committee acknowledged the settlement and final payment in cash of the 2013-2016 Long-term Performance Cash Plan in the meeting held on 7 March 2016 as well as the payment of the first cycle of the 2013-2016 Long-term Performance Shares Plan in the meeting held on 18 July 2016.

Additionally, in the course of this last meeting, the Committee gave a favourable report to the 2016-2020 Long-term Incentive Plan Regulations, which were subsequently approved by the Board of Directors on 19 July 2016.

Plan for Employees participating in the increase of economic benefits of the Inditex Group.

Finally, on 20 September 2016, the Remuneration Committee acknowledged the list of beneficiaries of the 2016-2020 Long-term Incentive Plan.

E. Extraordinary Plan for employees participating in the increase of the economic benefits of the Inditex Group

In the meeting held on 7 March 2016, the Remuneration Committee gave a favourable report to the results of the first calculation period of the Extraordinary Plan for employees participating in the increase of the economic benefits of the Inditex Group, and resolved to table it to the Board of Directors, which approved such results on 8 March 2016.

EXECUTIVE COMMITTEE

COMPOSITION

Antonio Abril Abadín, General Counsel and Secretary of the Board, acts as the Secretary-non-member of the Executive Committee.

All categories of directors sitting on the Board of Directors also sit on the Executive Committee.

REGULATIONS

The Executive Committee holds in delegation all the powers of the Board, except for those that cannot be delegated by law or by its Articles of Association and those that are necessary for the responsible exercise of the general supervisory function that is incumbent on the Board of Directors.

The Chairman of the Board of Directors acts as Chair of the Executive Committee and the Secretary of the Board, who may also be assisted by the Deputy Secretary, performs the duties of secretary. The office of Deputy Chair of the Executive Committee is held by the Deputy Chairman of the Board of Directors.

The permanent delegation of powers by the Board of Directors to the Executive Committee shall require two-thirds of the members of the Board to vote in favour and may include, at the Board’s discretion, all or a part of the powers of the Board itself.