20. Income tax

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.

Based on the contract dated 5 November 2018 PKO Bank Polski SA, jointly with its two subsidiaries: PKO Bank Hipoteczny SA and PKO Leasing SA, created the Podatkowa Grupa Kapitałowa Powszechnej Kasy Oszczędności Banku Polskiego Spółki Akcyjnej Tax Group (“PGK PKO Banku Polskiego SA”). The respective contract was registered by the Head of the Second Masovian Tax Office in Warsaw.

Annual report
2018

A Tax Group is an institution of the tax law stipulated in the provisions of the Corporate Income Tax Act. Its creation means that the income of the Tax Group companies will be consolidated for corporate income tax purposes and that solutions will be available facilitating the application of other, in particular operational, regulations of the Corporate Income Tax Act, dedicated specifically to tax groups.

PKO Bank Polski SA is the parent of PGK PKO Banku Polskiego SA. PGK PKO Banku Polskiego SA was established for three tax years. The first tax year began on 1 January 2019.

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.

Group Companies are Corporate Income Tax payers. The value of the Companies’ current tax liability is transferred to offices of the tax administration authorities competent for the Companies’ location.

Corporate Income Tax liabilities of particular Group Companies for 2018 will be paid in accordance with the schedules stipulated by the relevant tax regulations.

Pursuant to the principles governing the statute of limitations for tax liabilities, the correctness of income tax settlements may be audited within five years of the end of the year in which the deadline for the submission of the respective tax returns passed.

Tax systems of countries in which the Bank and entities in the PKO Bank Polski SA Group have their registered offices or branches are often subject to amendments to laws, among other things as a result of operations aimed at tightening the tax system, both at national and international level. In addition, understanding the regulations of the tax law, due to their ambiguity, may in practice lead to inconsistent interpretations by the tax authorities, differing from the interpretation by the taxpayer, and respective disputes may only be resolved by national or European courts. Therefore, interpretations of the tax law by the tax authorities differing from the practices implemented by the Bank or entities of the PKO Bank Polski SA Group cannot be eliminated and may have a significant unfavourable impact on their operations and financial condition, despite the various actions aimed at mitigating this risk, which are regularly undertaken and allowed by law.

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 Bank 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 financial assets measured at fair value through other comprehensive income, hedging instruments 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 amounts of deferred tax assets are 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

2018 2017
Current income tax expense (1 626) (1 264)
Deferred income tax on temporary timing differences 290 124
Income tax expense recognized in the income statement (1 336) (1 140)
Income tax reported in other comprehensive income in respect of temporary differences (96) (141)
Total (1 432) (1 281)

2018 2017
Profit or loss before tax 5 078 4 249
Tax calculated using the enacted rate in force in Poland (19%) (965) (807)
Effect of different tax rates of foreign entities 1
Effect of permanent timing differences, of which: (377) (349)
non-tax deductible impairment allowance on investments in associates and joint ventures (8) (5)
non-deductible impairment allowances on credit exposures and securities (76) (61)
contribution and payments to the Bank Guarantee Fund (80) (76)
tax on certain financial institutions (179) (177)
other permanent differences (34) (30)
Effect of other timing differences, including new technologies tax relief and donations 6 15
Income tax expense recognized in the income statement (1 336) (1 140)
Effective tax rate 26.31% 26.83%

Deferred tax provision

31.12.2017 Impact on opening balance of adjustment on adoption of IFRS 9  (retained earnings) Impact on opening balance of adjustment on adoption of IFRS 9 (other comprehensive income) Income statement Other comprehensive income 31.12.2018
Interest accrued on receivables (loans)1 224 471 (451) 244
Capitalized interest on performing housing loans 106 (66) 40
Interest on securities 62 18 80
Valuation of securities 8 29 (19) 18 64 100
Valuation of derivative financial instruments 8 2 13 23
Difference between carrying amount and tax value
of property, plant and equipment and intangible assets
333 (27) 306
Taxable income on release of IBNR allowance which was tax deductible in the past due to the adoption of IFRS 9 78 78
Prepayments 120 45 165
Foreign exchange gains 18 (18)
Other taxable temporary differences 4 1 5
Deferred income tax provision, gross 883 500 (19) (400) 77 1 041
DEFERRED TAX ASSET
Interest accrued on liabilities 116 (17) 99
Valuation of derivatives 156 13 (19) 150
Valuation of securities 12 12
Provision for employee benefits 94 (10) 84
Allowances for credit losses1 735 639 (256) 1 118
Fair value remeasurement of loans 17 17
Deferred commission to be settled under the straight-line method and effective interest rate 705 95 800
Other deductible temporary differences 27 (15) 12
Provision for costs to be incurred 41 (5) 36
Tax loss brought forward 16 (2) 14
Foreign exchange differences 1 (1)
Difference between carrying amount and tax value of property, plant and equipment and intangible assets, including leased assets 723 59 782
Deferred tax asset, gross 2 614 639 (110) (19) 3 124
Total effect of temporary differences 1 731 139 19 290 (96) 2 083
Deferred income tax provision (presented in the statement of financial position) 36 52
Deferred income tax asset (presented in the statement of financial position) 1 767 2 135

1The decrease in the deferred tax asset in respect of the credit loss allowance and the provision for interest accrued on amounts receivable (loans) relates, among other things, to the partial write-off of the interest in the amount of PLN 1 983 million.

search results: