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24.2 Quantitative data

Annual Report 2019 > 24.2 Quantitative data
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Income tax 1 January – 31 December 2019 1 January – 31 December 2018
Profit before tax (consolidated) 7,080 7,086
CIT rate (or range of CIT rates) for the country of the parent company’s seat (%) 19% 19%
Income tax which would be calculated as the product of gross accounting profit of the entities and the CIT rate in the country of the parent company’s seat 1,345 1,346
Differences between the income tax calculated above and the income tax shown in the profit and loss account: 550 372
– levy on financial institutions 215 207
– provisions for credit receivables in the part not covered by deferred tax 70 19
– measurement of financial assets (3) 6
– recognition/reversal of impairment losses for receivables, not classified as tax-deductible expenses 65 56
– recognition/reversal of other provisions and impairment losses for assets, not classified as tax-deductible expenses 44 (21)
– fee payable to BFG 116 71
– differences due to different tax rates (16) (4)
– taxation of insurance activities in Ukraine 7 5
– tax losses 26 12
– other tax increases, waivers, exemptions, deductions and reductions 26 21
Income tax shown in the profit and loss account 1,895 1,718
Total amount of current and deferred tax 1 January – 31 December 2019 1 January – 31 December 2018
1. Recognized in the profit and loss account, including: 1,895 1,718
– current tax 1,844 2,098
– deferred tax 51 (380)
2. Recognized in other comprehensive income, including: 117 (31)
– deferred tax 117 (31)
Income tax on other comprehensive income items 1 January – 31 December 2019 1 January – 31 December 2018
Gross other comprehensive income 613 (129)
Income tax (117) 31
Valuation of equity instruments measured at fair value through other comprehensive income (1) 58
Valuation of debt instruments (104) (28)
Valuation of debt instruments reclassified to profit or loss 12 24
Transactions to hedge cash flows (24) (23)
Net other comprehensive income 496 (98)

The PZU Group is comprised of units operating in different countries and subject to different tax regulations. Regulations governing value added tax, corporate income tax, personal income tax or contributions to social security undergo frequent changes. The regulations in effect in the countries where the PZU Group operates also contain confusing provisions, which result in differences of opinion concerning their legal interpretation between various state authorities and enterprises. Tax and other settlements (e.g. regarding customs or foreign currencies) may be inspected by authorities (in Poland – for a period of five years), which may levy high fines and any additional liabilities assessed during the inspection bear interest. These phenomena generate tax risk, as a result of which the amounts reported in the consolidated financial statements may change at a later date after the final amounts are determined by tax authorities.

PZU Finance AB (publ.), a PZU subsidiary, issued 5-year bonds in the period from 2014 to 2015, with the par value of EUR 850 million, which matured in July 2019. Proceeds from the issue were forwarded to PZU in the form of two loans for the total amount of EUR 850 million. Payments under the loans matched the payments under bonds in terms of the payment date and amount. PZU repaid loans to PZU Finance AB on 28 June 2019.

In 2018, in connection with concerns regarding taxation under the Swedish Conversion Act (2000:46) of the FX differences in the situation where Euro is a reporting currency, PZU Finance AB (publ.) applied for an individual tax ruling to the Swedish Tax Interpretation Board (Skatterättsnämnden). On 13 March 2019, PZU Finance AB (publ.) received a ruling under which the FX differences arising on repayment of the loan should be subject to taxation, while the FX differences arising on repayment of the bonds are not subject to taxation. On 3 April 2019, PZU Finance AB (publ.) appealed to the Supreme Court of Administration (Högsta förvaltningsdomstolen). The Board’s interpretation, if it is upheld by the Swedish Supreme Court of Administration (Högsta förvaltningsdomstolen) would mean that a different approach is applied in Sweden to companies reporting in the Euro than to companies reporting in Swedish kronor, which would be inconsistent with the assumptions of the Act. The PZU Group believes that such an approach would stand in contradiction with Article 63 of the Treaty on the Functioning of the European Union (TFEU) concerning the necessity to ensure unrestricted movement of capital in the EU, or Articles 49 and 54 of TFEU concerning the freedom of business activity.

In connection with the uncertainty regarding the outcome of the appeal proceedings, as at 31 December 2019, the PZU Group posted a liability of PLN 79 million.