17 Income tax expense (-)/credit

 

 

 

€ million

2018

2017

Current income taxes

-145

16

Deferred income taxes

-55

-234

Total income tax expense (-)/credit

-200

-218

 

 

 

The Group operates internationally, implying being subject to income taxes in many different tax jurisdictions.

The income tax expense on the Group’s profit before tax differ from the theoretical amount that would arise using the weighted average tax rate applicable to profits (losses) of the consolidated companies.

Income taxes recognized in the income statement can be detailed as follows:

 

 

 

€ million

2018

2017

Profit before income taxes

1 015

988

Income tax expense (-) calculated at domestic tax rates applicable in the respective countries

-213

-206

Theoretical income tax rate

21%

21%

Reported current income tax

-145

16

Reported deferred income tax

-55

-234

Total reported tax charge

-200

-218

Effective income tax rate

19.7%

22.0%

Difference between theoretical and reported tax

13

-12

Expenses non-deductible for tax purposes

-27

-34

Non-taxable income

15

8

Increase (-)/decrease of liabilities for uncertain tax positions

-33

181

Effect of previously unrecognized tax credits and losses used in the period

4

43

Tax credits

73

37

Variation in tax rates

59

-124

Effect of reversal of previously recognized DTA on tax losses

0

0

Current tax adjustments related to prior years

6

35

Deferred tax adjustments related to prior years

8

-71

Net effect of previously unrecognized DTA and non-recognition of current year deferred tax assets

-95

-89

Withholding tax

-1

-2

Other taxes

4

3

Total difference between theoretical and reported income tax

13

-12

 

 

 

The theoretical income tax rate remained stable compared to the prior year.

The effective tax rate of 19.7% is slightly below the prior year effective tax rate and is composed of a current and a deferred tax charge. The key drivers for the rate can be summarized as follows:

Current Tax:

  • The impact of R&D related tax incentives in key jurisdictions.
  • An increase of reserves for uncertain tax positions reflecting the tax-technical merits of the positions and the current state of discussions with tax inspectors in key jurisdictions. These reserves are partially offset through further recognition of assets for Mutual Agreement Procedures.
  • The impact of the Belgian tax reform limiting the utilization of tax losses carried forward.

Deferred Tax:

  • In line with prior years, there was an increase to the tax rate in respect of losses and carry-forward innovation income deduction generated in the period for which no deferred tax asset has been recognized.
  • Deferred tax assets linked to US operations could be remeasured following further guidance on US tax reform validating applicable tax rate.

Factors affecting the tax charge in future years

The Group is aware of many factors that could impact the future effective tax rate of the Group, in particular the profit/losses mix between different territories in which the Group operates, the amount of unrecognized losses that in future can be brought onto the balance sheet and the outcome of future tax audits.

Changes to tax legislation in jurisdictions where the Group operates as well as the impact of international tax rules such as the European Union’s Common Consolidated Corporate Tax Base (CCCTB) and the OECD’s Base Erosion & Profit Shifting framework (‘BEPS’) may also have a major impact.

Corporate restructuring, acquisitions and disposals, future planning as well as legislative changes may also impact the Group’s future tax charge.

The Group is specifically paying attention to the following:

  • Switzerland: Switzerland is expected to reform its tax legislation in the near future, leading to a reduced corporate tax rate (depending on the canton of Switzerland). The tax law change is expected to have a positive impact on the current taxes due in Switzerland.
  • U.S.: US government is currently releasing the legislative texts and interpretations of the 2017 US tax reform. UCB consistently reassesses its US tax positions based on the latest guidance.
  • U.K.: UCB management is closely following up on Brexit and any impact this could have from a corporate income tax perspective.