Pandora_Annual_Report_2018

INCOME TAX EXPENSE (DKK million) 2018 2017 Current income tax charge for the year 1,709 1,860 Deferred tax change for the year -293 -88 Deferred tax impact of change in tax rates 6 135 Adjustment to current tax for prior years 58 -46 Adjustment to deferred tax for prior years 57 38 Total income tax expense 1,537 1,899 Deferred tax on other comprehensive income 12 25 Tax on other comprehensive income 12 25 INCOME TAXES INCOME TAX EXPENSE Income tax expense was DKK 1,537 million in 2018, corresponding to an effective tax rate of 23.4% (2017: DKK 1,899 million, 24.8%). The tax rate of 23.4% was negatively impacted by a devi- ation in foreign subsidiaries' tax rates compared with the Danish tax rate and by a DKK 106 million reversal of the deferred tax asset related to the transfer of assets from Kasi Group that the Supreme Court of Denmark on 4 October 2018 has ruled as tax exempt. The effective tax rate is reduced by the non-taxable income in Thailand due to the Board of Investment agreements (BOIs). Significant accounting estimates Pandora is subject to income tax in the countries in which the Group operates, comprising various tax rates worldwide. Significant judgements are required in determining the accrual for income taxes, deferred tax assets and liabilities, and pro- vision for uncertain tax positions. As part of Pandora conducting business globally, tax and transfer pricing disputes with tax author- ities may occur. Any unsettled disputes with local tax authorities are recognised under income tax payable/receivable based on an assessment of the most likely outcome. Management believes that the provision made for uncertain tax positions is adequate. However, the actual obligation may de- viate from this and is dependent on the result of litigations and settlements with the relevant tax authorities. TAX APPROACH Pandora is committed to ensure compliance with the letter and spirit of tax laws in the markets in which we operate, while striving to maximise shareholder value in a responsible way. Pandora will only engage in reasonable tax planning that is aligned with its commercial and economic ac- tivities. Tax will be an outcome of the business strategy and will not drive business strategy. Pandora will evaluate opportunities for tax incen- tives offered by tax authorities to support econom- ic development, transfer of knowledge, creation of employment and maintaining good corporate citizenship. Accounting policies The income tax expense for the year comprises current tax and changes in deferred tax, including changes in tax rate, adjustment to prior years and changes in provision for uncertain tax positions. Tax is recognised in the income statement, except to the extent that it is related to items recognised in equity or other comprehensive income. The tax rates and tax laws used to compute the amounts are those enacted or substantively enacted, by the reporting date, in the countries where Pandora operates and generates taxable income. RECONCILIATION OF EFFECTIVE TAX RATE AND TAX 2018 2017 % (DKK million) % (DKK million) Profit before tax 6,582 7,667 Corporate tax rate in Denmark, 22% 22.0% 1,448 22.0% 1,687 Deviation in foreign subsidiaries’ tax rates compared with the Danish rate 0.6% 40 0.9% 71 Deferred tax impact of change in tax rates 0.1% 6 1.8% 135 Non-taxable income and non-deductible expenses -1.2% -81 -1.1% -83 Adjustment to tax for prior years 1.8% 115 -0.1% -8 Non-capitalised tax assets, net 0.0% - -1.3% -98 Withholding taxes 0.1% 9 2.6% 195 Effective income tax rate/income tax expense 23.4% 1,537 24.8% 1,899 NOTE 2.5 Taxation P A N D O R A A N N U A L R E P O R T 2 0 1 8 C O N T E N T S G R O U P 7 0