The income tax expense is classified into current and deferred income tax. The current income tax is recognised in the income statement. Deferred income tax, depending on the source of the temporary differences, is recorded in the income statement or in other comprehensive income.
Current income tax
Current income tax is calculated on the basis of gross accounting profit adjusted by non-taxable income, taxable income that does not constitute accounting income, non-tax deductible expenses and tax costs which are not accounting costs, in accordance with tax regulations. These items mainly include income and expenses relating to accrued interest receivable and payable, impairment allowances on receivables and provisions for off-balance sheet liabilities.
Deferred income tax
Deferred tax is recognised in the amount of the difference between the tax value of the assets and liabilities and their carrying amounts for the purpose of financial reporting. The Group records a deferred tax liabilities and assets which are recognised in the statement of financial position on the assets and liabilities side respectively. Changes in the balance of the deferred tax liabilities and assets are recognised in mandatory charges to profit, with the exception of the effects of the measurement of financial assets available for sale, cash flow hedges and actuarial gains and losses which are recognised in other comprehensive income, where changes in the balance of the deferred tax liabilities and assets are recognised in other comprehensive income. In determining deferred income tax, the deferred tax assets and liabilities as at the beginning and as at the end of the reporting period are taken into account.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or a part of the deferred income tax assets to be utilized.
Deferred income tax assets and liabilities are measured using tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date or that will be enacted in future according to the balance sheet date.
For deferred income tax calculation the Group uses the 19% tax rate for entities operating on the territory of Poland, 18% tax rate for entities operating in Ukraine and 22% tax rate for entities operating in Sweden.
Deferred tax assets are offset by the Group with deferred tax liabilities only when the enforceable legal entitlement to offset current income tax receivables with current income tax liabilities exists and deferred income tax is related to the same taxpayer and the same tax authority.
Income tax expense
|Current income tax expense||(1 243.1)||(647.9)|
|Deferred income tax related to creating and reversal of temporary differences||336.0||58.4|
|Income tax expense recognised in the income statement||(907.1)||(589.5)|
|Income tax expense recognised in other comprehensive income related to creating and reversal of temporary differences||129.6||(16.1)|
The Group entities are subject to corporate income tax. The amount of current tax liability of the entities is transferred to the appropriate tax authorities.
The final settlement of the corporate income tax liabilities of the Group entities for the year 2016 is made within the statutory deadline.
Reconciliation of the effective tax rate
|Profit before income tax||3 783.2||3 190.7|
|Tax calculated using the enacted tax rate (19%) in force in Poland||(718.8)||(606.2)|
|Effect of other tax rates of foreign entities||0.4||0.1|
|Permanent differences between profit before income tax and taxableincome, of which:||(238.7)||(12.8)|
|recognising a non-tax-deductible impairment allowance on investments in associates and joint ventures||(5.5)||-|
|impairment allowances on loan exposures not constituting tax-deductible expense||(17.8)||(3.4)|
|prudential payment to the BGF||(26.5)||(17.7)|
|tax on certain financial institutions||(157.5)||-|
|other permanent differences||(31.4)||8.3|
|Other differences between profit before income tax and taxable income, including new technologies tax relief and donations||49.6||28.1|
|Settlement of tax loss||0.4||1.3|
|Income tax recognised in the income statement||(907.1)||(589.5)|
|Effective tax rate||23.98%||18.48%|
|Temporary difference due to the deferred tax presented in the income statement||336.0||58.4|
|Total current income tax expense recognised in the income statement, of which:||(1 243.1)||(647.9)|
|Tax calculated using the enacted tax rate (19%) in force in Poland||(1 243.5)||(648.0)|
|Efffect of other tax rates of foreign entities||0.4||0.1|
According to regulations on considering tax liabilities as past due, tax authorities can verify the correctness of income tax settlements within 5 years from the end of the accounting year in which the tax declaration was submitted.
Deferred tax assets, net
|DEFERRED TAX LIABILITY||31.12.2015||Income statement||Other comprehensive income||Effect of business combination and other||31.12.2016|
|Interest accrued on receivables (loans)||260.7||(24.2)||-||-||236.5|
|Capitalised interest on performing housing loans||129.0||(10.6)||-||-||118.4|
|Interest on securities||27.6||15.3||-||-||42.9|
|Difference between carrying amount and tax valueof tangible fixed assets and intangible fixed assets||342.8||(13.5)||-||-||329.3|
|Taxable temporary differences concerning Group entities||31.8||2.7||(3.6)||-||30.9|
|Gross deferred tax liability, of which:||791.9||(30.3)||(3.6)||-||758.0|
|DEFERRED TAX ASSET|
|Interest accrued on liabilities||161.4||(56.0)||105.4|
|Valuation of derivative financial instruments||0.2||178.8||7.3||186.3|
|Valuation of securities||(26.7)||46.0||114.3||133.6|
|Provision for employee benefits||84.8||(0.4)||84.4|
|Impairment allowances on loan exposures||579.1||16.7||595.8|
|Impact of valuation at amortized cost||-||-|
|Adjustment of straight-line valuation method and EIR||474.4||97.8||572.2|
|Other temporary negative differences||131.5||(47.7)||83.8|
|Deductible temporary differences relating to Group entities||257.0||70.1||4.8||412.7||744.6|
|Gross deferred income tax asset||1 661.7||305.7||126.0||412.7||2 506.1|
|Total deferred tax impact||869.8||336.0||129.6||412.7||1 748.1|
|Deferred tax liability (presented in the statement of financial position)||31.8||30.9|
|Deferred income tax asset(presented in the statement of financial position)||901.6||1 779.0|
Information about important tax clues
As at 31 December 2015, PKO Bankowy Leasing Sp. z o.o. (Company) showed a receivable in the amount of PLN 20.4 million due to overpayment of VAT and penalty interest on tax liabilities in connection with the adjustments of VAT declarations submitted in December 2014 for the periods from January 2011 to June 2013. On 7 January 2015, the Company made a payment of arrears of VAT including penalty interest. At the same time, on 26 January 2015 the company applied for a refund of overpaid tax. On 6 February 2015, the Tax Office in Łódź (TO) issued an unfavourable decision on the settlement of overpayments and VAT returns for the periods from January 2011 to June 2013. The settlement of overpaid VAT refunds and arrears of VAT does not occur until the date of the submission of corrected declaration and the application for overpaid tax refund. The settlement does not occur on the date of payment of the tax in the amount greater than the tax due, as argued by the Company.
On 19 February 2015 the Company filed a complaint to Head of the Tax Chamber in Łódź and then, on 14 August 2015 filled a complaint to the Regional Administrative Court in Łódź against the decision of the TO of 6 February 2015 on the method of settlement of excessive tax payments and tax refunds on account of tax arrears, indicating on the contravention of the Tax Ordinance resulting in misinterpretation and incorrect application of its articles and non-application of the principle of proportionality for charging interest on tax debts. On 30 December 2015 the Regional Administrative Court issued a favourable verdict for the Company, repealing the appealed resolution of the TO of 6 February 2015 and sustaining Company’s objections to misinterpretation of the Ordinance’s articles and non-application of the principle of
proportionality by the tax authorities. On 19 February 2016 Head of the Tax Chamber filled the cassation complaint to the Supreme Administrative Court (SAC). On 30 August 2016 the Supreme Administrative Court reversed the judgment of the Regional Administrative Court and remanded the issue back. The Supreme Administrative Court recognised that the provisions of the Tax Ordinance were precise sufficiently and the authorities applied them correctly. On 10 January, 13 January and 8 February 2017, the Regional Administrative Court dismissed all of the Company’s complaints concerning the recognition of excessive tax payments and tax refunds in the matter in question.
Due to the ruling of the Supreme Administrative Court and the above-mentioned rulings of the Regional Administrative Court, in 2016 the PKO Leasing SA Group recognised a full impairment allowance against the above-mentioned receivable and the other receivables and liabilities, totalling PLN 21.1 million.