17 Income tax expense (−)/credit

17 Income tax expense (−)/credit

 

 

 

€ million

2019

2018

Current income taxes

−225

−145

Deferred income taxes

80

−55

Total income tax expense (−)/credit

−146

−200

 

 

 

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

2019

2018

Profit before income taxes

960

1 015

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

−210

−213

Theoretical income tax rate

22%

21%

Reported current income tax

−225

−145

Reported deferred income tax

80

−55

Total reported tax charge

−146

−200

Effective income tax rate

15%

20%

Difference between theoretical and reported tax

64

13

Expenses non-deductible for tax purposes

−28

−27

Non-taxable income

19

15

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

−53

−33

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

3

4

Tax credits

89

73

Variation in tax rates

42

59

Effect of reversal of previously recognized DTA on tax losses

0

0

Current tax adjustments related to prior years

17

6

Deferred tax adjustments related to prior years

6

8

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

−38

−95

Withholding tax

−2

−1

Other taxes

9

4

Total difference between theoretical and reported income tax

64

13

 

 

 

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

The effective tax rate of 15% is below the prior year effective tax rate and is composed of a current tax charge and a deferred tax credit. The key drivers for the rate can be summarized as follows:

Current Tax:

  • The increasing 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 certain one-off reorganization transactions in the framework of the legal entity rationalization and centralization of intellectual property.

Deferred Tax:

  • In line with prior years, although less pronounced due to the increase of UCB’s profitability, there was an increase to the tax rate in respect of tax losses and carry-forward innovation income deduction generated in the period for which no deferred tax asset could be recognized.
  • Deferred tax assets linked to U.K., Swiss and Belgian operations needed to be remeasured based on recently enacted changes to the applicable corporate income tax rate.
  • Recognition of additional deferred tax assets on R&D tax credits which will be offset against future taxable income.

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 and other tax attributes that in future can be recognized as a deferred tax asset on the balance sheet and the outcome of ongoing and future tax audits.

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

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 initiatives on the tax challenges arising from the digitalization of the economy may also have a major impact.

Next to the EU and OECD developments, the Group is specifically paying attention to the upcoming elections or government negotiations in Belgium and the U.S.

Finally, UCB management is closely following up on the effective Brexit arrangements post leave agreement on 31 January 2020 and any impact this could have from a corporate income tax perspective.