5. Taxation

in PLN millions, unless otherwise stated

Note 5.1 Income tax in the 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	590	863
Note 5.1.1	Deferred income tax	57	54
	Current tax adjustments for prior periods	-	( 86)
	Income tax	647	831

In 2018, KGHM Polska Miedź S.A. paid income tax in the amount of PLN 710 million (in 2017: PLN 934 million) to the appropriate tax office. The difference between the tax paid by the Company in 2018 as compared to the tax paid in 2017 is mainly due to a change in the manner of payment of tax advances in 2018 as compared to 2017. In January 2017, a tax advance was paid for the fourth quarter of 2016. The tax advance paid in January 2018 concerned only a single month (December 2017).

The table below presents an identification of differences between income tax from profit before tax and the income tax calculated according to the principles resulting from the Corporate Income Tax Act:

Reconciliation of effective tax rate

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Profit/(loss) before tax	2 672	2 154
Tax calculated using the given rate (2018: 19%, 2017: 19%)	508	409
Tax effect of non-taxable income, including:	(363)	( 9)
reversal of allowances for impairment of loans granted to subsidiaries	(217)	-
Tax effect of expenses not deductible for tax purposes, including:	558	517
impairment losses on shares in subsidiaries and allowances for impairment of intra-group loans	201	168
the minerals extraction tax	317	335
Tax adjustments for prior periods	-	( 86)
Current tax from settlement of the Tax Group	(56)	-
Income tax in profit or loss [effective tax rate amounted to: 24.21% (in 2017 (38.58)%]	647	831

Note 5.1.1 Deferred income tax

Accounting policies	Important estimates and assumptions
Deferred 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 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 taxation authority.	The probability of realising the deferred tax assets with future tax income is based on the Company’s budget. The Company recognises deferred tax assets in its accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

Accounting policies

Important estimates and assumptions

Deferred 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 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 taxation authority.

The probability of realising the deferred tax assets with future tax income is based on the Company’s budget. The Company recognises deferred tax assets in its accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Deferred tax assets at the beginning of the period, of which:	31	140
Deferred tax assets	1 034	1 011
Deferred tax liabilities	(1 003)	(871)
Change in accounting policies – application of IFRS 9, of which:	13	N/A*
Deferred tax assets	(41)	N/A*
Deferred tax liabilities	54	N/A*
Deferred tax assets after application of IFRS 9, of which:	44	N/A*
Deferred tax assets	993	N/A*
Deferred tax liabilities	(949)	N/A*
Deferred tax assets in the period:	(35)	(109)
Recognised in profit or loss	(57)	(54)
Recognised in other comprehensive income	22	(55)
Deferred tax assets at the end of the period, of which:	9	31
Deferred tax assets	1 159	1 034
Deferred tax liabilities	(1 150)	(1 003)

* N/A- not applicable – items in which the following did not occur: measurement 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:

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Maturity over the 12 months from the end of the reporting period	(279)	(191)
Maturity of up to 12 months from the end of the reporting period	288	222

Deferred tax assets and liabilities

Deferred tax assets	1 January 2017	Credited/(Charged)		31 December 2017
Deferred tax assets	1 January 2017	profit or loss	other comprehensive income	31 December 2017
Interest	9	11	-	20
Provision for decommissioning of mines and other technological facilities	155	6	-	161
Measurement of forward transactions	84	(1)	-	83
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	68	(10)	-	58
Future employee benefits	341	11	25	377
Re-measurement of available-for-sale financial assets	108	-	-	108
Equity instruments measured at fair value	-	-	-	-
Allowances for impairment/reversal of allowances for impairment of loans	-	-	-	-
Re-measurement of hedging instruments	57	-	(30)	27
Other	189	11	-	200
Total	1 011	28	(5)	1 034

Deferred tax assets	Change in accounting policies – application of IFRS 9	1 January 2018	Credited/(Charged)		31 December 2018
Deferred tax assets	Change in accounting policies – application of IFRS 9	1 January 2018	profit or loss	comprehensive income	31 December 2018
Interest	-	20	15	-	35
Provision for decommissioning of mines and other technological facilities	-	161	36	-	197
Measurement of forward transactions	(70)	13	0	-	13
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	-	58	(8)	-	50
Future employee benefits	-	377	16	58	451
Re-measurement of available-for-sale financial assets	(108)	-	-	-	-
Equity instruments measured at fair value	92	92	-	29	121
Allowances for impairment/reversal of allowances for impairment of loans	44	44	-	-	44
Re-measurement of hedging instruments	-	27	-	(3)	24
Other	1	201	23	-	224
Total	(41)	993	82	84	1 159

Deferred tax liabilities	1 January 2017	Credited/(Charged)		31 December 2017
Deferred tax liabilities	1 January 2017	profit or loss	other comprehensive income	31 December 2017
Measurement of forward transactions	39	2	-	41
Re-measurement of hedging instruments	-	-	43	43
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	773	60	-	833
Re-measurement of available-for-sale financial assets	11	-	7	18
Interest	42	20	-	62
Other	6	-	-	6
Total	871	82	50	1 003

Deferred tax liabilities	Change in accounting policies – application of IFRS 9	1 January 2018	Credited/(Charged)		31 December 2017
Deferred tax liabilities	Change in accounting policies – application of IFRS 9	1 January 2018	profit or loss	other comprehensive income	31 December 2017
Measurement of forward transactions	(25)	16	-	-	16
Re-measurement of hedging instruments	(42)	1	-	62	63
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	-	833	97	-	930
Re-measurement of available-for-sale financial assets	(18)	-	-	-	-
Interest	30	92	44	-	136
Other	1	7	(2)	-	5
Total	(54)	949	139	62	1 150

Note 5.2 Other taxes and charges

The following table presents the minerals extraction tax incurred by the Company.

	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 statement of profit or loss
Minerals extraction tax, of which	1 671	1 765		tax rate calculated for every reporting period*	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 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 costs of basic products and is not deductible for corporate income tax purposes.

Other taxes and charges were as follows:

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Royalties	108	110
Excise tax	37	39
Real estate tax	167	153
Other taxes and charges	100	87
Total	412	389

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 Company’s liabilities towards the Polish Tax Office arising from the corporate income tax, including due to the withholding tax, personal income tax and liabilities towards Customs Chamber 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 Company’s liabilities towards the Polish Tax Office arising from the corporate income tax, including due to the withholding tax, personal income tax and liabilities towards Customs Chamber due to the minerals extraction tax and the excise tax.

Liabilities not representing financial liabilities are measured at the amount due.

Tax assets

	As at 31 December 2018	As at 31 December 2017
Current corporate income tax assets	17	-
Receivables due to taxes, social and health insurance and other benefits	258	214
Tax assets	275	214

Tax liabilities

	As at 31 December 2018	As at 31 December 2017
Current corporate income tax liabilities	-	17
Liabilities due to taxes, social and health insurance and other benefits	405	399
Total	405	416

Financial Statements

Separate financial statements

Explanatory notes

Consolidated financial statements

Explanatory notes

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