Accounting policies
The income tax expense is classified into current and deferred income tax. The current income tax is recognized in the income statement. Deferred income tax, depending on the source of 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-deductible 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 recognized 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 deferred tax provisions and assets, which are recognized in the statement of financial position. Changes in the balance of deferred tax provisions and assets are recognized in mandatory charges to profit, with the exception of the effects of the measurement of available-for-sale financial assets, hedging instruments and actuarial gains and losses, which are recognized in other comprehensive income, where changes in the balance of deferred tax provisions and assets are recognized in other comprehensive income. In determining deferred income tax, the deferred tax assets and provisions 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 verified at each balance sheet date and decreased adequately if it is no longer likely that taxable income sufficient to realize a deferred tax asset in part or in full will be earned.
Deferred tax assets and provisions are valued using the tax rates which are expected to be in force in the period in which the asset will crystallize or the provision will be utilized, based on the tax rates (and tax regulations) binding as at the balance sheet date or tax rates and tax regulations that as at the balance sheet date are believed to be binding in the future.
For deferred income tax calculation the Group uses the 19% tax rate for entities operating in 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 against deferred tax provisions only when it has an enforceable legal title to offset current income tax receivables against current income tax liabilities exists and deferred income tax is related to the same taxpayer and the same tax authority.
Financial information
Income tax expense
| 2017 | 2016 | |
|---|---|---|
| Current income tax expense | (1 264) | (1 243) |
| Deferred income tax on temporary differences | 124 | 336 |
| Income tax expense recognized in the income statement | (1 140) | (907) |
| Income tax expense on temporary differences recognized in other comprehensive income | (141) | 130 |
| Total | (1 281) | (777) |
The Group companies are corporate income tax payers. 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 2017 will be performed within the statutory deadlines.
Reconciliation of the effective tax rate
| 2017 | 2016 | |
|---|---|---|
| Profit before income tax | 4 249 | 3 783 |
| Tax calculated using the enacted rate in force in Poland (19%) | (807) | (719) |
| Effect of different tax rates of foreign entities | 1 | - |
| Effect of permanent timing differences, of which: | (349) | (238) |
| Tax on certain financial institutions | (177) | (158) |
| Contributions to BGF | (76) | (26) |
| Non-tax-deductible impairment allowances on loans and advances | (61) | (18) |
| Recognizing a non-tax-deductible impairment allowance on investments in associates and joint ventures | (5) | (5) |
| Other permanent differences | (30) | (31) |
| Effect of other timing differences, including new technologies tax relief and donations | 15 | 50 |
| Income tax expense recognized in the income statement | (1 140) | (907) |
| Effective tax rate | 26,83% | 23,98% |
According to regulations on the expiration of tax liabilities, tax authorities can verify the correctness of income tax settlements within 5 years from the end of the accounting year in which the tax return should have been submitted.
Deferred tax assets, net
| DEFERRED TAX PROVISION | 31.12.2016 | Income statement | Other comprehensive income | 31.12.2017 |
|---|---|---|---|---|
| Interest accrued on receivables (loans) | 239 | (15) | - | 224 |
| Capitalized interest on performing housing loans | 118 | (12) | - | 106 |
| Interest on securities | 43 | 19 | - | 62 |
| Valuation of securities | 5 | (55) | 58 | 8 |
| Valuation of derivatives | 2 | 6 | - | 8 |
| Difference between carrying amount and tax valueof property, plant and equipment and intangible assets | 351 | (18) | - | 333 |
| Prepayments | 70 | 50 | - | 120 |
| Foreign exchange gains | 18 | - | 18 | |
| Other taxable temporary differences | 2 | 2 | - | 4 |
| - | ||||
| Gross deferred income tax provision | 830 | (5) | 58 | 883 |
| Deferred tax asset | ||||
| Interest accrued on liabilities | 110 | 6 | - | 116 |
| Valuation of derivatives | 184 | (29) | 1 | 156 |
| Valuation of securities | 135 | (51) | (84) | - |
| Provision for employee benefits | 91 | 3 | - | 94 |
| Impairment allowances on loan exposures | 720 | 15 | - | 735 |
| Adjustment of straight-line valuation method and effective interest rate | 667 | 38 | - | 705 |
| Provision for costs to be incurred | 45 | (4) | - | 41 |
| Tax loss | 15 | 1 | - | 16 |
| Foreign exchange gains and losses | 14 | (13) | - | 1 |
| Difference between carrying amount and tax value of property, plant and equipment and intangible assets, including leased assets | 575 | 148 | - | 723 |
| Other deductible temporary differences | 22 | 5 | - | 27 |
| Gross deferred tax asset | 2 578 | 119 | (83) | 2 614 |
| Total effect of temporary differences | 1 748 | 124 | (141) | 1 731 |
| Deferred income tax provision(presented in the statement of financial position) | 31 | 36 | ||
| Deferred income tax asset(presented in the statement of financial position) | 1 779 | 1 767 |