Income taxes
2.2.4.1 16. Income taxes
A. Amounts recognised in statement of profit or loss
| In thousands of euro | 2018 | 2017 |
| Current tax expense | ||
| Current year | 17,981 | 18,076 |
| Changes prior years | -2,248 | -939 |
| Total | 15,733 | 17,137 |
| Deferred tax expense | ||
| Deferred tax current year | 1,544 | -162 |
| Changes in tax rate | -1,190 | 116 |
| (De)recognition of deferred tax assets | -807 | -444 |
| Changes in estimates related to prior years | -56 | -418 |
| Total | -509 | -908 |
| Total tax expenses | 15,224 | 16,229 |
The total tax expense excluded the Group’s share of tax expense of the equity-accounted investees of €662 thousand (2017: €907 thousand), which has been included in ‘share of profit of equity accounted investees, net of tax’, see Note 16G.
B. Amounts recognised in Other Comprehensive Income (OCI)
| 2018 | 2017 | |||||
| In thousands of euro | Before tax | Tax benefit (expense) | Net of Tax | Before tax | Tax benefit (expense) | Net of Tax |
| Items that will never be reclassified to profit or loss | ||||||
| Remeasurement of defined benefit liabilities | 12,000 | -2,136 | 9,864 | 5,158 | -990 | 4,168 |
| Equity-accounted investees - share of other comprehensive income | -13 | 2 | -11 | 5 | - | 5 |
| Items that are or may be reclassified subsequently to profit or loss | ||||||
| Foreign operations – foreign currency translation differences | -1,128 | 167 | -961 | -2,373 | 290 | -2,083 |
| Cash flow hedges - effective portion of changes in fair value | -417 | 87 | -330 | 8 | -2 | 6 |
| Cash flow hedges - reclassified to statement of profit or loss / statement of financial position | -754 | 188 | -566 | -44 | 11 | -33 |
| Total | 9,688 | -1,692 | 7,996 | 2,754 | -691 | 2,063 |
| Current tax benefit (expense) | 355 | 290 | ||||
| Deferred tax benefit (expense) | -2,047 | -981 | ||||
| Total | -1,692 | -691 | ||||
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Within the Group, loans are agreed between the different subsidiaries. The loans in the United Kingdom and the loans to Polish entities are considered to form part of the net investment in the subsidiaries, and as such foreign exchange differences on these loans are recorded directly through other comprehensive income. For income tax purposes these foreign exchange differences are taxable or tax deductible.
As the foreign exchange differences are recorded through other comprehensive income, the related current tax impact is also recorded through other comprehensive income for a positive amount of €355 thousand in 2018 (2017: €290 thousand positive).
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C. Reconciliation of effective tax rate
| In thousands of euro | 2018 | 2017 | ||
| Profit before tax | 74,454 | 75,532 | ||
| Less share of profit of equity-accounted investees, net of tax | -2,907 | -3,884 | ||
| Profit before tax excluded the share of profit of equity-accounted investees, net of tax | 71,547 | 71,648 | ||
| Income tax using the Dutch domestic tax rate | 25.0% | 17,887 | 25.0% | 17,912 |
| Effect of tax rates in foreign jurisdictions | 0.4% | 301 | 0.9% | 611 |
| Change in tax rate | -1.7% | -1,190 | 0.2% | 116 |
| Tax effect of: | ||||
| Non-deductible expenses | 2.8% | 1,998 | 0.8% | 625 |
| Tax incentives | -0.9% | -661 | -1.7% | -1,234 |
| (De)recognition of deferred tax assets | -1.1% | -807 | -0.6% | -444 |
| Prior year adjustments | -3.2% | -2,304 | -1.9% | -1,357 |
| Total | 21.3% | 15,224 | 22.7% | 16,229 |
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The change in tax rate 2018 (€1.2 million impact) mainly relates to the in 2018 enacted updated tax rates in the Netherlands with changes in 2019 up to and including 2021 (refer to Note 16F). The increase of the non-deductible expenses is mainly caused by acquisition costs, non-deductible interest expenses of the contingent considerations and the put option liability and amortisation of the intangible assets as a result of the acquisitions.
The recognition of deferred tax assets (€0.8 million) relates to the recognition of deferred tax assets in Germany (refer to Note 16E). The prior year adjustments 2018 mainly relate to one off impact of final submitted income tax returns of previous years.
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D. Movement in deferred tax balances
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The Group expects that its accruals for tax liabilities are adequate for all open years based on its assessment of many factors, including interpretations of tax law and prior experience. The Group off-sets tax assets and liabilities if, and only if, it has a legally enforceable right to do so. The Group recognises deferred tax assets to the extent that it is considered probable based on business forecasts that sufficient taxable profits will be available.
E. Unrecognised deferred tax assets
In 2018 all deferred tax assets regarding tax losses carried forward have been recognised in Germany as the Executive Committee has established that future taxable profits should be available against which these losses can be utilised (2017: not all deferred tax assets were recognised). The not recognized deferred tax assets 2017 were included in the balance of unrecognised losses for €3.2 million at 31 December 2017, with a tax effect of €0.9 million. The tax losses can be carried forward indefinitely, but the Executive Committee applies a ten year period to determine the adequacy whether tax losses can be utilised.
Furthermore, deferred tax assets have not been recognised in respect of tax losses incurred on the sale of real estate in the United Kingdom amounting to €8.4 million (31 December 2017: €2.7 million), with a tax effect of €1.5 million (31 December 2017: €0.5 million). These tax losses can only be utilised against a future tax gain on the sale of specific assets such as real estate. As the Executive Committee does not have plans to dispose real estate, the recovery of the deferred tax asset is highly uncertain and as such not recognised.
F. Tax Group
The Company and the Dutch subsidiaries, in which the Company has a 100% interest, form a tax group for the purpose of income tax, of which ForFarmers N.V. is the head of the tax group.
For VAT, a comparable tax group exists for the Dutch subsidiaries. The total current receivable or liability towards the tax authorities is accounted for in the statement of financial position of the head of the tax group. Settlement of taxes within this tax group takes place as if each company is independently liable for tax. Each participating subsidiary is jointly and separately liable for possible liabilities of the tax group as a whole. As of 1 January 2018 Coöperatie FromFarmers U.A. is no longer part of the VAT tax group and ForFarmers N.V. is the head of the VAT tax group.
A number of companies in Germany form a tax group for the purposes of income tax (‘Organschaft’ for Körperschaftsteuer and Gewerbesteuer). Settlement of taxes within this tax group takes place as if each company is independently liable for tax.
The companies in the United Kingdom form a tax group for the purposes of income tax (‘Group Relief’) and VAT. Settlement of taxes within this tax group takes place as if each company is independently liable for tax.
In the other countries there is no tax group.
Tax rates
| 2018 | 2017 | |
| Tax rates | ||
| The Netherlands | 25.00% | 25.00% |
| Germany (average) | 27.87% | 28.38% |
| Belgium | 29.58% | 33.99% |
| Poland | 19.00% | N/A |
| United Kingdom (average) | 19.00% | 19.25% |
Effective tax rate
| 2018 | 2017 | |
| Effective tax rate | ||
| The Netherlands | 20.91% | 22.04% |
| Germany | 20.13% | 25.19% |
| Belgium | 30.97% | 36.19% |
| Poland | 4.19% | N/A |
| United Kingdom | 17.82% | 1.60% |
The above-mentioned effective tax rate deviates from the statutory tax rate mainly due to the impact of the following items:
Netherlands
The effective tax rate is lower than the statutory tax rate due to amongst others innovation box benefits, and the tax impact due to the change in future tax rates in the Netherlands. Based on the enacted Dutch tax law, the Dutch corporate income tax rates will decrease from 25% to 22,55% per January 1, 2020 and per January 1, 2021 to 20,5%. All deferred tax calculations are updated based on deferred tax rates. This adjustment has a positive impact on our Dutch DTL position.
Germany
The effective tax rate is lower due to recognition of the deferred tax assets relating to the net operating losses.
Belgium
The effective tax rate is higher because of non-tax deductible items.
Poland
The effective tax rate is lower due to usage of subsidies for regional investments.
UK
The effective tax rate is especially in 2017 lower because of prior year adjustments. In 2018 this effect was smaller.
G. Taxes on equity-accounted investees
Corporate income taxes on the results of HaBeMa are settled with the tax authorities by ForFarmers GmbH, Germany (indirect shareholder). The results of HaBeMa are accounted for based on the equity method and are presented net of tax in the consolidated statement of profit and loss. These corporate income tax charges are deducted from the share of profit of equity-accounted investees for an amount of €662 thousand (2017: €907 thousand).
Trade taxes ('Gewerbesteuer') applicable to HaBeMa are borne by the entity itself.
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