Chapters
Annual Report 2020

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 the latter case, the related tax is recognized in Other Comprehensive Income or directly in equity.

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 and reflects uncertainty related to income taxes, if any. If the Group concluded it is not probable that the tax authority will accept an uncertain tax treatment, the Group determines the tax impact, applying the 'most likely amount' or ' the expected value' methods, depending on circumstances and expected resolution of the uncertainty.

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 and deductible 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

2020

2019

Current income tax

58,247

100,361

Deferred income tax

- 4,293

-21,184

Charge in Income Statement

53,954

79,177

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

2020

%

2019

%

Result before tax

9,232

100.0%

274,548

100.0%

Computed weighted average tax rate*

12,545

136.0%

86,098

31.5%

Net exempt expenses not deductible for tax purposes

18,610

201.6%

17,654

6.4%

Incentive tax credits for the reporting period

- 2,860

-31.0%

-3,097

-1.1%

Net effect of (de)recognition of tax losses and unused incentive tax credits

12,666

137.2%

-6,714

-2.4%

Changes in tax rate

1,927

20.9%

-601

-0.2%

Impairment of deferred tax asset

7,250

78.5%

-

-

(Over)/Under provided in prior years

3,816

41.3%

-14,163

-5.2%

Tax charge

53,954

584.5%

79,177

28.9%

*This is calculated based on the different weights of the results in different countries and their domestic tax rates.

Expenses not deductible for tax purposes in 2020 include €11,420 related to impairment of goodwill in CGU United States and CGU Italy (2019: €10,739 impairment of goodwill in CGU United States). See note 13 for more details.

In 2019, an unused incentive tax credit of €16,906 in relation to the restructuring of the activities in China is included in the line 'Net effect of (de)recognition of tax losses and unused incentive tax credits'. During 2020, this tax credit was reclassed to the current tax position.

Impairment of deferred tax asset relates to the write-off of the fixed assets in the United States (see note 11 and 12).

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 recognized a current income tax receivable of €15,271 (in 2020 adjusted to €13,724). This impact is presented in the line '(Over)/Under provided in prior years'.

If the Group had recognized all losses from operating companies across jurisdictions, the tax charge would have been €8,669 (2019:€10,930) lower.

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

in thousands of EUR

2020

2019

Current income tax receivables

32,215

31,759

Current income tax liabilities

- 58,680

-40,705

Net amount at 31 December

- 26,465

-8,946

Increase in current income tax liabilities mainly relate to income tax in Germany, which will be paid in line with timeline as set by tax authorities.

Current income tax receivables include the uncertain tax position in France of €13,724 (2019: €15,271). Current income tax liabilities include uncertain tax positions of €19,142 (2019: €18,995).

Deferred Income Tax

in thousands of EUR

2020

2019

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

Gross amount at 1 January

460,223

434,820

Acquisitions

-

10,392

Income Statement impact

- 28,810

14,190

Change because of income rate change

3,750

- 18,459

Recognized in Other comprehensive income

2,845

8,797

Reclassification

-

7,327

Exchange differences

- 13,165

3,156

Gross amount at 31 December

424,843

460,223

Offset assets and liabilities

- 373,100

- 398,401

Net amount at 31 December

51,743

61,822

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

319,221

326,430

- Deferred income tax asset to be recovered within 12 months

105,622

133,793

424,843

460,223

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

Gross amount at 1 January

441,370

427,380

Acquisitions

690

27,841

Income Statement impact

- 35,030

- 7,379

Change because of income rate change

5,677

- 18,074

Recognized in Other comprehensive income

- 288

469

Reclassification

-

7,353

Exchange differences

- 10,983

3,780

Gross amount at 31 December

401,436

441,370

Offset assets and liabilities

- 373,100

- 398,401

Net amount at 31 December

28,336

42,969

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

318,782

366,477

- Deferred income tax liability to be settled within 12 months

82,654

74,893

401,436

441,370

Net deferred income taxes

- 23,407

- 18,853

Specification of gross deferred income tax assets:

in thousands of EUR

31 December 2020

31 December 2019

Property, plant and equipment

6,715

7,233

Leases

304,815

330,250

Goodwill

612

446

Other intangible assets

9,075

7,545

Inventories

5,704

5,294

Post-employment benefits

26,518

23,631

Provisions

13,050

10,237

Derivatives

4,220

3,103

Contract liabilities and amounts to be invoiced

6,811

8,454

Trade and other payables

3,947

5,314

Deferred taxes on temporary differences

381,467

401,507

Deferred taxes on carry forward losses and unused incentive tax credits

43,376

58,716

Total deferred income tax assets

424,843

460,223

Specification of gross deferred income tax liabilities:

in thousands of EUR

31 December 2020

31 December 2019

Property, plant and equipment

7,342

9,054

Leases

295,214

318,402

Goodwill

40,161

40,447

Other intangible assets

54,656

68,105

Inventories

240

377

Post-employment benefits

54

214

Provisions

2,608

3,674

Derivatives

51

175

Contract liabilities and amounts to be invoiced

214

9

Trade and other payables

896

913

Total deferred income tax liabilities

401,436

441,370

At 31 December 2020 deferred income tax assets on carry-forward losses have been recognized for an amount of €32,771 (2019: €23,329). The losses are recognized based on taxable temporary differences or future expected results taking into consideration the expiration date of historical losses, other tax regulations and the latest strategic plan, which includes the COVID-19 pandemic implications. The related income tax losses amount to €141,511 (2019: €95,650). At 31 December 2020, deferred tax assets of €37,801 (2019: €20,844) relate to entities which suffered a loss in either the current or the preceding period.

Deferred taxes on unused incentive tax credits relate to incentive tax credit in Germany of €10,605 (2019: €17,922).

Unrecognized income tax losses amount to €255,019 (2019: €334,084). These tax losses expire as follows:

in thousands of EUR

31 December 2020

31 December 2019

Expiring within one year

3,066

2,499

Expiring between one and two years

932

9,454

Expiring between two and five years

11,687

23,755

Expiring after more than five years

109,716

105,579

Offsettable for an unlimited period

129,618

192,797

255,019

334,084

The unrecognized tax losses offsetable for an unlimited period relate mainly 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.