Annual Report 2020

2.7 Income tax

Income tax expense charged to the income statement

CHF million

2020

2019

Current income tax

– 25

– 21

Deferred income tax

68

131

Income tax

43

110

Reconciliation

CHF million

2020

2019

Earnings before tax

123

– 336

Expected income tax rate (Swiss average rate)

16 %

21 %

Income tax at the expected income tax rate

– 20

71

Tax effects from:

 

 

16 % (21 %) difference in tax rate compared to locally expected income tax rates

– 5

– 25

Income exempt from tax

23

35

Non-deductible expenses for tax purposes

– 28

– 34

Valuation from tax loss carryforwards

11

42

Effect of changes in tax rates

72

3

Previous years

– 9

17

Other effects

– 1

1

Total income tax expense

43

110

Effective income tax rate

– 35 %

33 %

On 19 May 2019, the Swiss electorate voted on the Federal Act on Tax Reform and Old Age and Survivors’ Insurance Funding (TRAF). Numerous cantons lowered their corporate income tax rates on account of this tax reform. The Solothurn electorate did not accept the cantonal implementation of TRAF until 9 February 2020, resulting in the main effect for the Alpiq Group this year. The expected income tax rate therefore decreased from 21 % in the previous year to 16 %. The implementation of TRAF in the canton of Solothurn is also the main reason for the effect of changes in tax rates caused by the adjustment of the deferred tax rate.

Change in deferred tax assets and liabilities

CHF million

Deferred tax assets

Deferred tax liabilities

Net deferred tax liabilities

Balance at 31 December 2018

37

492

455

Deferred taxes recognised in the income statement

60

– 71

– 131

Deferred taxes recognised in other comprehensive income

5

11

6

Acquisition / disposal of subsidiaries

 

– 5

– 5

Currency translation differences

– 3

– 1

2

Balance at 31 December 2019

99

426

327

Deferred taxes recognised in the income statement

– 18

– 86

– 68

Deferred taxes recognised in other comprehensive income

– 1

– 1

 

Acquisition / disposal of subsidiaries

 

– 1

– 1

Currency translation differences

– 1

 

1

Balance at 31 December 2020

79

338

259

Deferred tax assets and liabilities by origination of temporary differences

CHF million

31 Dec 2020

31 Dec 2019

Tax losses and tax assets not yet used

41

36

Property, plant and equipment

29

49

Other non-current assets

2

4

Current assets

19

17

Provisions and liabilities

26

27

Total gross deferred tax assets

117

133

Property, plant and equipment

127

155

Other non-current assets

182

228

Current assets

39

49

Provisions and liabilities

28

28

Total gross deferred tax liabilities

376

460

Net deferred tax liabilities

259

327

Tax assets recognised in the balance sheet

79

99

Tax liabilities recognised in the balance sheet

338

426

At 31 December 2020, individual subsidiaries held tax loss carryforwards totalling CHF 782 million (previous year: CHF 770 million), which are available for offsetting against future taxable profits. Of this, the Alpiq Group has not recognised tax benefits on tax loss carryforwards of CHF 577 million (CHF 614 million) in the balance sheet item “Deferred tax assets”, as they are recognised for tax loss carryforwards only to the extent that realisation of the related tax benefit is probable. The average tax rate on tax loss carryforwards not eligible for capitalisation is 15 % (18 %). These tax loss carryforwards expire in the following periods:

CHF million

31 Dec 2020

31 Dec 2019

Within 1 year

59

53

Within 2 – 3 years

45

77

After 3 years

370

357

Unlimited use

103

127

Total non-capitalisable tax loss carryforwards

577

614

In addition, non-capitalised deductible temporary differences exist in an amount of CHF 91 million (CHF 161 million).

Assumptions are made based on local legal principles in calculating current income tax. Income taxes that are actually payable may deviate from the values originally calculated, as the definitive assessment is not finalised until years after the end of the reporting period in some cases. Furthermore, the definitive clarification of the taxation issue at the partner power plants in the cantons of Valais and Grisons is still pending. The resulting risks are identified, assessed and recognised where necessary. Deferred tax assets are calculated in part using far-reaching estimates. The underlying forecasts pertain to a period of several years and comprise, among other things, a forecast of future taxable income as well as interpretations of the existing legal basis.

Accounting policies

Income tax expense represents the sum of current and deferred income tax. Current income tax is calculated on taxable earnings using the tax rates that have been enacted by the end of the reporting period. Deferred income tax is calculated using the tax rates enacted or substantively enacted at the reporting date.

Deferred taxes are recognised due to the differing recognition of certain income and expense items in the Group’s annual internal accounts and annual tax accounts. Deferred tax arising from temporary differences is calculated applying the balance sheet liability method. Deferred tax is not recognised for differences associated with investments in group companies, which will not reverse in the foreseeable future and where the timing of the reversal is controlled by the Group. Deferred tax assets are recognised when it is probable that they will be realised. Unrecognised tax loss carryforwards and unrecognised tax assets are disclosed.

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