5. Taxation

in PLN millions, unless otherwise stated

Note 5.1 Income tax in the consolidated statement of profit or loss

Accounting policies
Income tax recognised in profit or loss comprises current tax and deferred tax. Current income tax is calculated in accordance with current tax laws.

Income tax

		from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
	Current income tax	642	977
Note 5.1.1	Deferred income tax	165	(117)
	Tax adjustments for prior periods	1	(86)
	Income tax	808	774

In 2018, the Group’s entities paid income tax in the amount of PLN 802 million (in 2017: PLN 983 million) to appropriate tax offices.

The table below presents an identification of differences between income tax from profit before tax for the Group and the income tax which could be achieved if the Parent Entity’s tax rate was applied:

Reconciliation of effective tax rate

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Profit before income tax	2 466	2 299
Tax calculated using the Parent Entity’s rate (2018: 19%, 2017: 19%)	469	437
Effect of applying other tax rates abroad	(217)	(177)
Tax effect of non-taxable income	(288)	(340)
Tax effect of expenses not deductible for tax purposes, including:	515	547
minerals extraction tax, which is not deductible for corporate income tax purposes	317	335
Deductible temporary differences on which deferred tax assets were not recognised	345	659
Utilisation of previously - unrecognised tax losses	(30)	(352)
Other	14	-
Income tax in profit or loss [effective tax rate amounted to 32.8% of profit before income tax (in 2017: 33.7% of profit before income tax)]	808	774

In Poland, tax bodies are empowered to audit tax declarations for a period of five years, although during this period companies may offset tax assets with tax liabilities being the income of the State Treasury (including due to current income tax). In Canada, tax declarations may be audited for a period of three years without the right to offset assets with liabilities due to current income tax.

Note 5.1.1 Deferred income tax

Accounting policies	Significant estimates and assumptions
Deferred income tax is determined using tax rates and tax laws that are expected to be applicable when the asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred tax liabilities and deferred tax assets are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the exception of temporary differences arising from initial recognition of assets or liabilities in transactions other than business combinations. Deferred tax assets are recognised if it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilised. Deferred tax assets and deferred tax liabilities are offset if the company has a legally enforceable right to set off current tax assets and current tax liabilities, and if the deferred tax assets and deferred tax liabilities relate to income taxes levied on a given entity by the same tax authority.	The probability of realising the deferred tax assets with future tax income is based on the budgets of the companies of the Group. Companies of the Group recognise deferred tax assets in their accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Companies of the Group which historically have generated losses, and whose financial projections do not foresee the achievement of taxable profit enabling the deduction of deductible temporary differences, do not recognise deferred tax assets in their accounting books.

Accounting policies

Significant estimates and assumptions

Deferred income tax is determined using tax rates and tax laws that are expected to be applicable when the asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax liabilities and deferred tax assets are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the exception of temporary differences arising from initial recognition of assets or liabilities in transactions other than business combinations.
Deferred tax assets are recognised if it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilised.
Deferred tax assets and deferred tax liabilities are offset if the company has a legally enforceable right to set off current tax assets and current tax liabilities, and if the deferred tax assets and deferred tax liabilities relate to income taxes levied on a given entity by the same tax authority.

The probability of realising the deferred tax assets with future tax income is based on the budgets of the companies of the Group. Companies of the Group recognise deferred tax assets in their accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.
Companies of the Group which historically have generated losses, and whose financial projections do not foresee the achievement of taxable profit enabling the deduction of deductible temporary differences, do not recognise deferred tax assets in their accounting books.

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Deferred income tax at the beginning of the period, of which:	42	(52)
Deferred tax assets	389	511
Deferred tax liabilities	(347)	(563)
Change in accounting policies – application of IFRS 9 and IFRS 15, of which:	(19)	N/A*
Deferred tax assets	(83)	N/A*
Deferred tax liabilities	64	N/A*
Deferred tax assets at the beginning of the period after application of IFRS 9 and IFRS 15, of which:	23	N/A*
Deferred tax assets	389	N/A*
Deferred tax liabilities	(366)	N/A*
Deferred income tax during the period:	(212)	94
Recognised in profit or loss	(165)	117
Recognised in correspondence with current tax assets	(64)	-
Recognised in other comprehensive income	25	(55)
Exchange differences from translation of foreign operations statements with a functional currency other than PLN	(8)	32
Deferred income tax at the end of the period, of which:	(189)	42
Deferred tax assets	309	389
Deferred tax liabilities	(498)	(347)

* N/A – not applicable – items which were not measured in accordance with principles arising from the application, from 1 January 2018, of IFRS 9.

Maturities of deferred tax assets and deferred tax liabilities were as follows:

	Deferred tax assets		Deferred tax liabilities
	As at 31 December 2018	As at 31 December 2017	As at 31 December 2018	As at 31 December 2017
Maturity over the 12 months from the end of the reporting period	254	120	479	329
Maturity of up to 12 months from the end of the reporting period	55	269	18	18
Total	309	389	498	347

Expiry dates of unused tax losses and tax credits, for which deferred tax assets were not recognised in individual countries are presented in the following table:

	As at 31 December 2018				As at 31 December 2017
	Unused tax losses	Expiry date	Unused tax credits	Expiry date	Unused tax losses	Expiry date	Unused tax credits	Expiry date
Luxembourg	3 483	2020	-	-	3 619	2020	-	-
Chile	939	undefined	-	-	924	undefined	-	-
Canada	818	2026-2038	59	2017-2021	515	2032-2037	44	2015-2021
Other	256	-	-	-	188	-	132	-
Total	5 496		59		5 246		176

As at 31 December 2018, the Parent Entity did not recognise deferred tax liabilities on taxable temporary differences in the amount of PLN 965 million (as at 31 December 2017: PLN 1 185 million) related to investments in subsidiaries and shares in joint ventures, as the conditions stipulated in IAS 12.39 were met.

Deferred tax assets

	As at 1 January 2017	Credited/(Charged)			As at 31 December 2017	Change in accounting policies – application of IFRS 9 and IFRS 15	As at 1 January 2018	Credited/(Charged)			As at 31 December 2018
	As at 1 January 2017	profit or loss	other comprehensive income	exchange differences from translation of foreign operations statements with a functional currency other than PLN	As at 31 December 2017		As at 1 January 2018	profit or loss	Other comprehensive income and current tax assets	exchange differences from translation of foreign operations statements with a functional currency other than PLN	As at 31 December 2018
Provision for decommissioning of mines and other technological facilities	156	6	-	-	162	-	162	49	-	-	211
Measurement of forward transactions	84	-	-	-	84	(70)	14	-	-	-	14
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	79	(10)	-	-	69	-	69	(8)	-	-	61
Future employee benefits	379	12	26	-	417	-	417	19	61	-	497
Equity instruments measured at fair value	110	(2)	-	-	108	(16)	92	-	30	-	122
Other	690	3	(31)	(23)	639	3	642	102	(33)*	14	725
Total	1 498	9	(5)	(23)	1 479	(83)	1 396	162	58	14	1 630

* The amount includes PLN (64) million tax credit used by the KGHM International Ltd. Group as a result of a tax reform in USA (decrease in deferred tax assets in correspondence with current tax assets).

Deferred tax liabilities

	As at 1 January 2017	(Credited)/Charged			As at 31 December 2017	Change in accounting policies – application of IFRS 9 and IFRS 15	As at 1 January 2018	(Credited)/Charged			As at 31 December 2018
	As at 1 January 2017	profit or loss	other comprehensive income	exchange differences from translation of foreign operations statements with a functional currency other than PLN	As at 31 December 2017		As at 1 January 2018	profit or loss	other comprehensive income	exchange differences from translation of foreign operations statements with a functional currency other than PLN	As at 31 December 2018
Measurement of forward transactions	42	-	-	-	42	(27)	15	1	-	-	16
Re-measurement of hedging instruments	-	-	43	-	43	(42)	1	-	63	-	64
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	1 024	36	-	(44)	1 016	-	1 016	196	-	16	1 228
Adjustments due to fair value measurement of KGHM INTERNATIONAL LTD. including realisation of adjustments to the end of the reporting period	167	(148)	-	(18)	1	-	1	-	-	-	1
Other	317	4	7	7	335	5	340	130	34	6	510
Total	1 550	(108)	50	(55)	1 437	(64)	1 373	327	97	22	1 819

Note 5.2 Other taxes

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017	Basis for calculating tax	Tax rate	Presentation in the consolidated statement of profit or loss
Minerals extraction tax, of which:	1 671	1 765		tax rate calculated for every reporting period *	Taxes and charges in expenses by nature (note 4.1)
- copper	1 373	1 407	Amount of copper in produced concentrate, expressed in tonnes
- silver	298	358	Amount of silver in produced concentrate, expressed in kilograms

* in accordance with conditions specified by the Act dated 2 March 2012 on the minerals extraction tax.

The minerals extraction tax paid by the Parent Entity is calculated from the amount of copper and silver in produced concentrate and depends on the prices of these metals as well as on the USD/PLN exchange rate. The tax is accounted for under manufacturing costs of basic products and is not deductible for corporate income tax purposes.

Other taxes and charges, with a breakdown by geographical location, were as follows:

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Poland	484	456
Real estate tax	202	188
Royalties	108	110
Excise tax	39	41
Environmental fees	19	19
Other taxes and charges	116	98
Other countries	72	44
Total	556	500

Note 5.3 Tax assets and liabilities

Accounting policies
Tax assets comprise current income tax assets and the settlement related to VAT. Assets not representing financial assets are initially recognised at nominal value and are measured at the end of the reporting period at the amount due. Tax liabilities comprise the Group’s liabilities towards the tax office arising from the corporate income tax, including due to the withholding tax, personal income tax and liabilities due to the minerals extraction tax and the excise tax. Liabilities not representing financial liabilities are measured at the amount due.

Accounting policies

Tax assets comprise current income tax assets and the settlement related to VAT.
Assets not representing financial assets are initially recognised at nominal value and are measured at the end of the reporting period at the amount due.
Tax liabilities comprise the Group’s liabilities towards the tax office arising from the corporate income tax, including due to the withholding tax, personal income tax and liabilities due to the minerals extraction tax and the excise tax.
Liabilities not representing financial liabilities are measured at the amount due.

	As at 31 December 2018	As at 31 December 2017
Current corporate income tax assets	142	41
Assets due to taxes, social and health insurance and other benefits	275	236
Tax assets	417	277

	As at 31 December 2018	As at 31 December 2017
Current corporate income tax liabilities	14	88
Liabilities due to taxes, social and health insurance and other benefits	571	542
Tax liabilities	585	630

Financial Statements

Separate financial statements

Explanatory notes

Consolidated financial statements

Explanatory notes

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