PANDORA Annual Report 2017

P A N D O R A A N N U A L R E P O R T 2 0 1 7 G R O U P C O N T E N T S 7 2 INCOME TAX EXPENSE DKK million 2017 2016 Current income tax charge for the year 1,860 1,692 Deferred tax change for the year -88 -87 Deferred tax impact of change in tax rates 135 3 Adjustment to tax for prior years -8 17 Total income tax expense 1,899 1,625 Deferred tax on other comprehensive income 25 10 Tax on other comprehensive income 25 10 I NCOME TAX E S INCOME TAX EXPENSE The income tax expense was DKK 1,899 million in 2017, corresponding to an effective tax rate of 24.8% (2016: DKK 1,625 million, 21.2%). The tax rate of 24.8% was negatively impacted by a re- duction in the value of the deferred tax asset re- lated to US activities, due to the reduction in the US tax rate, and withholding tax on repatriation of dividend from Thailand related to profit arising before 2013. The effective tax rate is slightly re- duced by the non-taxable income in Thailand due to the Board of Investment agreements (BOIs) and the adjusted non-capitalised tax assets. SIGNIFICANT ACCOUNTING ESTIMATES PANDORA is subject to income tax in the coun- tries in which the Group operates, comprising various tax rates worldwide. Significant judge- ments are required in determining the accrual for income taxes, deferred tax asset and liabilities, and provision for uncertain tax positions. As part of PANDORA conducting business glob- ally, tax and transfer pricing disputes with tax au- thorities 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 are adequate. However, the actual obligation may deviate 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 activi- ties. Tax will be an outcome of the business strate- gy and will not drive business strategy. PANDORA will evaluate opportunities for tax incentives offered by tax authorities to support economic develop- ment, transfer of knowledge, creation of employ- ment and maintaining good corporate citizenship. ACCOUNTING POLICIES The 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 recog- nised 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 2017 2016 % DKK million % DKK million Profit before tax 7,667 7,650 Corporate tax rate in Denmark, 22% 22.0 1,687 22.0 1,683 Deviation in foreign subsidiaries’ tax rates compared with the Danish rate 0.9 71 1.0 77 Deferred tax impact of change in tax rates 1.8 135 0.0 3 Non-taxable income and non-deductible expenses -1.1 -83 -1.7 -133 Adjustment to tax for prior years -0.1 -8 0.2 17 Non-capitalised tax assets, net -1.3 -98 -0.3 -22 Withholding taxes 2.6 195 0.0 - Effective income tax rate/income tax expense 24.8 1,899 21.2 1,625 NOTE 2.5 TAXAT I ON