Chapters
Annual Report 2019

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 based on 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 based on 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 based on 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 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

2019

2018

Current income tax

100,361

122,760

Deferred income tax

- 21,184

-41,088

Charge in Income Statement

79,177

81,672

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

2019

%

2018

%

Result before tax

274,548

100.0%

318,968

100.0%

Computed weighted average tax rate

86,098

31.5%

93,509

29.4%

Net exempt expenses not deductible for tax purposes

17,654

6.4%

7,520

2.4%

Incentive tax credits for the reporting period

- 3,097

-1.1%

-2,763

-0.9%

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

- 6,714

-2.4%

-23,504

-7.4%

Changes in tax rate

- 601

-0.2%

80

0.0%

(Over)/Under provided in prior years

- 14,163

-5.2%

6,830

2.1%

Tax charge

79,177

28.9%

81,672

25.6%

Expenses not deductible for tax purposes in 2019 include €10,739 related to impairment of goodwill in CGU United States (see note 13).

An unused incentive tax credit of €16,906 in relation to the restructuring of the activities in China is included in the line ''Effect of (de)recognition of tax losses and unused incentive tax credits''.

In 2019, based on the anticipated outcome of proceedings in relation to the tax audits and subsequent, currently pending international arbitration on Transfer Pricing positions, the Group has recognised a current income tax receivable of €15,271. This impact is presented in the line ''(Over)/Under provided in prior years''.

Furthermore, if the Group had recognized all losses from operating companies across jurisdictions, the tax charge would have been €10,930 lower.

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

in thousands of EUR

2019

2018

Current income tax receivables

31,759

8,944

Current income tax liabilities

- 40,705

-40,389

Net amount at 31 December

- 8,946

-31,445

Current income tax receivables include the uncertain tax position in France of €15,271 (2018: €0). Current income tax liabilities include uncertain tax positions of €18,995 (2018: €18,649).

Deferred Income Tax

in thousands of EUR

Notes

2019

2018

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

Gross amount at 31 December

108,853

78,501

Adjustment on initial application of IFRS 16

325,967

-

Adjusted Gross amount at 1 January

434,820

78,501

Acquisitions

4

10,392

1,465

Income Statement impact

14,190

32,863

Change because of income rate change

- 18,459

- 1,304

Recognized in Other comprehensive income

8,797

- 2,467

Reclassification

7,327

- 314

Exchange differences

3,156

109

Gross amount at 31 December

460,223

108,853

Offset assets and liabilities

- 398,401

- 62,147

Net amount at 31 December

61,822

46,706

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

326,430

72,095

- Deferred income tax asset to be recovered within 12 months

133,793

36,758

460,223

108,853

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

Gross amount at 31 December

133,694

142,106

Adjustment on initial application of IFRS 16

293,686

-

Adjusted Gross amount at 1 January

427,380

142,106

Acquisitions

4

27,841

992

Income Statement impact

- 7,379

- 8,305

Change because of income rate change

- 18,074

- 1,224

Recognized in Other comprehensive income

469

441

Reclassification

7,353

- 314

Exchange differences

3,780

- 2

Gross amount at 31 December

441,370

133,694

Offset assets and liabilities

- 398,401

- 62,147

Net amount at 31 December

42,969

71,547

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

366,477

124,282

- Deferred income tax liability to be settled within 12 months

74,893

9,412

441,370

133,694

Net deferred income taxes

- 18,853

24,841

Specification of gross deferred income tax assets:

in thousands of EUR

31 December 2019

31 December 2018

Property, plant and equipment

7,233

6,500

Leases

330,250

-

Goodwill

446

457

Other intangible assets

7,545

5,486

Inventories

5,294

4,930

Post-employment benefits

23,631

18,567

Provisions

10,237

9,204

Derivatives

3,103

1,456

Contract liabilities and amounts to be invoiced

8,454

8,424

Trade and other payables

5,314

5,450

Deferred taxes on temporary differences

401,507

60,474

Deferred taxes on carry forward losses and unused incentive tax credits

58,716

48,379

Total deferred income tax assets

460,223

108,853

Specification of gross deferred income tax liabilities:

in thousands of EUR

31 December 2019

31 December 2018

Property, plant and equipment

9,054

10,323

Leases

318,402

-

Goodwill

40,447

37,654

Other intangible assets

68,105

79,505

Inventories

377

127

Post-employment benefits

214

211

Provisions

3,674

3,865

Derivatives

175

780

Contract liabilities and amounts to be invoiced

9

11

Trade and other payables

913

1,218

Total deferred income tax liabilities

441,370

133,694

At 31 December 2019 deferred income tax assets on carry-forward losses have been recognized for an amount of €23,329 (2018: €21,425). 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 €95,650 (2018: €84,503).

Deferred taxes on unused incentive tax credits relate to the restructuring of the activities in China for €16,906 (2018: €0) and incentive tax credit in Germany of €17,922 (2018: €26,954).

At 31 December 2019 deferred tax assets of €20,844 (2018: €19,892) relate to entities which suffered a loss in either the current or the preceding period.

Unrecognized income tax losses amount to €334,084 (2018: €301,547). These tax losses expire as follows:

in thousands of EUR

31 December 2019

31 December 2018

Expiring within one year

2,499

1,836

Expiring between one and two years

9,454

2,884

Expiring between two and five years

23,755

9,352

Expiring after more than five years

105,579

84,855

Offsettable for an unlimited period

192,797

202,620

334,084

301,547

The unrecognized tax losses offsettable for an unlimited period relate mainly, amongst others to activities in Brazil. 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.