Chapters
Annual Report 2018

10. Current and Deferred Income Taxes

Accounting Policy
The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated Income Statement, except to the extent that it relates to items recognized in Other Comprehensive Income or directly in equity. In this case, the related tax is also recognized in Other Comprehensive Income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Balance Sheet. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized for losses carried forward and unused incentive tax credits to the extent that sufficient taxable temporary differences are available or realization of the related tax benefit through the future taxable profits is probable. The assessment of whether a deferred tax asset should be recognized on the basis of the availability of future taxable profits take into account all factors concerning the entity's expected future profitability, both favorable and unfavorable.

Deferred income tax is recognized on temporary differences arising on investments in subsidiaries and associates and joint ventures, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority, on either the same taxable entity or different taxable entities, where there is an intention to settle the balances on a net basis.

Significant Accounting Estimates and Judgments

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the total provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Certain uncertainties are caused by the many changes in international tax policies, in absence of available guidance and caselaw on those recent or newly enacted tax measures. The Group continuously monitors developments, where needed with the help of subject-matter experts, to correctly apply evolving interpretations.

The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period for which such determination is made.

Carry forward losses and unused incentive tax credits are recognized as a deferred tax asset to the extent that sufficient taxable temporary differences are available or if it is likely that future taxable profits will be available against which losses can be set off. Judgment is involved to establish the extent to which expected future profits substantiate the recognition of a carry forward loss.

Income Taxes

The following income tax was recognized in consolidated Income Statement:

in thousands of EUR

2018

2017

Current income tax

122,760

120,606

Deferred income tax

- 41,088

-19,551

Charge in Income Statement

81,672

101,055

The reconciliation between the computed weighted average rate of income tax expense, which is generally applicable to GrandVision companies, and the actual rate of taxation is as follows:

in thousands of EUR

2018

%

2017

%

Result before tax

318,968

100.0%

350,022

100.0%

Computed weighted average tax rate

93,509

29.4%

96,715

27.6%

(Exempt income)/expenses not deductible for tax purposes

7,520

2.4%

-412

-0.1%

Incentive tax credits

- 2,763

-0.9%

-9,089

-2.6%

Effect of (de)recognition of tax losses and unused incentive tax credits

- 23,504

-7.4%

23,651

6.8%

Changes in tax rate

80

0.0%

-5,754

-1.6%

(Over)/Under provided in prior years

6,831

2.1%

-4,056

-1.2%

Tax charge

81,672

25.6%

101,055

28.9%

In 2018, the decrease in income tax expense is mainly resulting from the recognition of deferred tax assets for unused incentive tax credits from the past available because of changes in the legal and financing structure in certain jurisdiction, partially offset by prior years effect driven by numerous effects across jurisdictions.

Current income tax assets and liabilities recognized on the consolidated Balance Sheet:

in thousands of EUR

2018

2017

Current income tax receivables

8,944

6,416

Current income tax liabilities

- 40,389

-47,587

Net amount at 31 December

- 31,445

-41,171

Current income tax liabilities include uncertain tax positions of €18,649 (2017: €5,000).

Deferred Income Tax

in thousands of EUR

Notes

2018

2017

The movement on the deferred income tax assets is as follows:

Gross amount at 1 January

78,501

74,617

Acquisitions

4

1,465

6,533

Income Statement impact

32,863

4,279

Change because of income rate change

- 1,304

- 3,942

Processed through Other comprehensive income

- 2,467

162

Reclassification

- 314

- 225

Exchange differences

109

- 2,923

Gross amount at 31 December

108,853

78,501

Offset assets and liabilities

- 62,147

- 61,160

Net amount at 31 December

46,706

17,341

Analysis of the gross amount of deferred income tax assets is as follows:

- Deferred income tax asset to be recovered after more than 12 months

72,095

49,756

- Deferred income tax asset to be recovered within 12 months

36,758

28,745

108,853

78,501

The movement on the deferred income tax liability is as follows:

Gross amount at 1 January

142,106

134,040

Acquisitions

4

992

31,796

Income Statement impact

- 8,305

- 9,518

Change because of income rate change

- 1,224

- 9,696

Processed through Other Comprehensive Income

441

- 841

Reclassification

- 314

- 225

Exchange differences

- 2

- 3,450

Gross amount at 31 December

133,694

142,106

Offset assets and liabilities

- 62,147

- 61,160

Net amount at 31 December

71,547

80,946

Analysis of the gross amount of deferred income tax liabilities is as follows:

- Deferred income tax liability to be settled after more than 12 months

124,282

127,962

- Deferred income tax liability to be settled within 12 months

9,412

14,144

133,694

142,106

Net deferred income taxes

24,841

63,605

Specification of gross deferred income tax assets:

in thousands of EUR

31 December 2018

31 December 2017

Property, plant and equipment

6,500

5,873

Goodwill

457

240

Other intangible assets

5,486

7,938

Inventories

4,930

4,825

Post-employment benefits

18,567

18,457

Provisions

9,204

9,681

Derivatives

1,456

1,872

Contract liabilities and to be invoiced amounts

8,424

7,631

Trade and other payables

5,450

4,502

Deferred taxes on temporary differences

60,474

61,019

Deferred taxes on carry forward losses and unused incentive tax credits

48,379

17,482

Total deferred income tax assets

108,853

78,501

Specification of gross deferred income tax liabilities:

in thousands of EUR

31 December 2018

31 December 2017

Property, plant and equipment

10,323

9,709

Goodwill

37,654

38,021

Other intangible assets

79,505

89,962

Inventories

127

252

Post-employment benefits

211

427

Provisions

3,865

1,917

Derivatives

780

279

Contract liabilities and to be invoiced amounts

11

260

Trade and other payables

1,218

1,279

Total deferred income tax liabilities

133,694

142,106

Deferred income tax assets on carryforward losses have been recognized for an amount of €14,129 (2017: €17,482). The losses are recognized based on taxable temporary differences or future expected results taking into consideration the expiration date of historical losses and other tax regulations. The related income tax losses amount to €84,053 (2017: €66,701). Further, in 2018, deferred income tax assets on unused tax credit incentives have been recognized for an amount of €34,250 (2017: €0), as a consequence of changes in legal and financing structure in certain jurisdiction. The related unused tax incentives credits amount to €75,122 (2017: €0).

Deferred tax assets of €19,892 (2017: €14,545) relate to entities which suffered a loss in either the current or the preceding period. For loss making entities, carry forward losses are recognized as a deferred tax asset if it is likely that future taxable profits will be available against which losses can be set off, or to the extent that sufficient taxable temporary differences are available.

Unrecognized income tax losses amount to €301,547 (2017: €280,814). These tax losses expire as follows:

in thousands of EUR

31 December 2018

31 December 2017

Expiring within one year

1,836

3,401

Expiring between one and two years

2,884

5,335

Expiring between two and five years

9,352

20,563

Expiring after more than five years

84,855

49,171

Offsettable for an unlimited period

202,620

202,344

301,547

280,814

The unrecognized tax losses offsettable for an unlimited period relate, amongst others to entities in Spain and Brazil. The unrecognized tax losses generated in Spain are subject to alternate views from the Spanish tax authorities. For group companies with a history of recent losses and the absence of expected future taxable results, deferred tax assets have been recognized only to the extent of taxable temporary differences.