B4. Income taxes

AP ACCOUNTING PRINCIPLES

The Group’s tax expense comprises current tax and deferred tax.

Current tax is calculated on the taxable profit for the period based on the tax rules prevailing in the countries where the Group operates. Since taxable profit excludes costs that are not tax deductible and income that is not taxable, this is differentiated from profit before tax in profit or loss. Current tax also includes adjustments relating to recognized current tax from prior periods. Interest attributable to income tax and withholding taxes deducted at source on intra-Group transactions are also recognized as income tax.

Deferred tax is calculated based on temporary differences between the carrying amounts and the taxable values of assets and liabilities and for tax loss carryforwards in so far as it is probable that these can be utilized against future taxable profits. Deferred taxes are measured at their nominal amount and based on the tax rates enacted or substantively enacted on the balance sheet date. Deferred tax is not calculated on the initial recognition of goodwill or when an asset or liability is recognized for the first time, provided that the asset or liability is not attributable to an acquisition. SCA does not recognize tax that may arise on future dividends of the retained earnings of foreign subsidiaries. Any such future effects (withholding tax deducted at source and other deferred tax on profit-taking within the Group) are recognized when SCA can no longer control the reversal of such differences or when, for other reasons, it is probable that a reversal can take place in the foreseeable future.

The recognition of tax effects is determined by the manner in which the underlying transaction is recognized. For items in profit or loss, the tax effect is recognized in profit or loss. For transactions in equity and in other comprehensive income, the tax effect is recognized in equity and in other comprehensive income, respectively.

Tax liabilities and tax assets are recognized net when SCA has a legal right to offset.

KAA KEY ASSESSMENTS AND ASSUMPTIONS

For companies that operate globally and thus apply significantly different taxation legislation, determining deferred tax assets and tax liabilities is complicated. This requires that assessments and assumptions be made to determine the value of the deferred tax asset and deferred tax liability on the balance sheet date. Future changes to taxation legislation and trends in the business climate will impact the company’s future taxable profits and thus its possibility to utilize deferred tax assets on loss carryforwards and other temporary differences. As of December 31, 2016, SEK 1,465m was recognized as deferred tax assets based on best assessment of future taxable profits in the Group. At year-end 2016, the Group also had taxable losses of SEK 4,687m, for which no deferred tax asset had been recognized. Accordingly, a changed assessment of the probability of future taxable profits could have a positive or negative effect.

Key assessments and assumptions are also made regarding recognition of provisions and contingent liabilities relating to tax risks. For further information, see Note D7 and Note G3.

Tax expense

Tax expense (+), tax income (–)

SEKm

2016

%

2015

%

2014

%

 

 

 

 

 

 

 

Current tax

 

 

 

 

 

 

Income tax for the period

2,872

27.7

2,019

20.2

2,145

22.6

Adjustments for prior periods

1,656

16.0

–2

–0.0

–155

–1.6

Current tax expense

4,528

43.7

2,017

20.2

1,990

21.0

 

 

 

 

 

 

 

Deferred tax

 

 

 

 

 

 

Changes in temporary differences

–46

–0.4

323

3.2

472

5.0

Adjustments for prior periods

–419

–4.1

349

3.5

97

1.0

Revaluation

285

2.8

–149

–1.5

–139

–1.5

TB4:2 Deferred tax expense

–180

–1.7

523

5.2

430

4.5

IS Tax expense

4,348

42.0

2,540

25.4

2,420

25.5

Explanation of tax expense

The difference between the recognized tax expense and expected tax expense is explained below. The expected tax expense is calculated based on profit before tax in each country multiplied by the tax rate in effect in the country.

Tax expense

SEKm

2016

%

2015

%

2014

%

1)

Other permanent effects relate primarily to non-deductible costs for ongoing competition cases.

2)

Taxes attributable to prior periods for 2016 relate, for the most part, to an ongoing tax dispute in Sweden totaling SEK 1,223m. The effect attributable to 2015 includes a tax provision of SEK 294m concerning a tax dispute in Spain. The year 2014 primarily pertains to effects in Taiwan of SEK –54m.

3)

The change in value of deferred tax assets for 2016 relates mainly to the revaluation of losses in Spain of SEK 227m, in Brazil of SEK 185m and in India of SEK 213m. The amount for 2015 includes the utilization of uncapitalized losses of SEK –81m in Belgium and SEK 62m relating to the operation in Asia. The change in value of deferred tax assets for 2014 includes SEK –179m relating to the operation in Poland.

IS Profit before tax

10,360

 

9,992

 

9,488

 

IS Tax expense

4,348

42.0

2,540

25.4

2,420

25.5

Expected tax expense

2,258

21.8

2,267

22.7

2,251

23.7

Difference

2,090

20.2

273

2.7

169

1.8

 

 

 

 

 

 

 

The difference is explained by:

 

 

 

 

 

 

Permanent differences between accounting and taxable result

 

 

 

 

 

 

Effects of subsidiary financing

–152

–1.5

–71

–0.7

–21

–0.2

Effects of acquisitions and divestments

27

0.3

–23

–0.2

99

1.0

Taxes relating to profit-taking in the Group

37

0.4

27

0.3

9

0.1

Other permanent effects 1)

377

3.6

17

0.2

176

1.9

Taxes related to prior periods 2)

1,237

12.0

347

3.4

–58

–0.6

Changes in the value of deferred tax assets 3)

668

6.4

23

0.2

–76

–0.8

Changes in tax rates

–104

–1.0

–47

–0.5

40

0.4

Total

2,090

20.2

273

2.7

169

1.8

Current tax liability

Current tax liability (+), current tax asset (–)

SEKm

2016

2015

2014

Value, January 1

–45

95

283

Current tax expense

4,528

2,017

1,990

CF TB4:1 Paid tax

–3,799

–2,208

–2,101

Other changes from aquisitions, divestments and reclassifications

–487

13

–111

Translation differences

–3

38

34

Value, December 31

194

–45

95

BS of which current tax liability

935

827

747

BS of which current tax asset

741

872

652

TB4:1 Paid tax

Tax payments by SCA entities in different countries, paid tax (–)

SEKm

2016

2015

2014

Country

 

 

 

Sweden

–1,313

–79

–65

Germany

–516

–358

–271

Spain

–405

–90

–90

Netherlands

–215

–59

–191

China

–146

–236

–51

Belgium

–144

–80

–91

UK

–136

–115

–92

Austria

–94

–100

–60

Italy

–94

–87

–77

Mexico

–88

–121

–107

Colombia

–83

–72

–179

Ecuador

–67

–41

–21

Russia

–64

–59

–81

Slovakia

–61

–30

–39

Japan

–57

–35

–45

Denmark

–40

–26

–36

Finland

–37

–48

–8

Norway

–30

–41

–34

Costa Rica

–26

–14

–12

Poland

–26

–2

–26

Other countries

–157

–515

–525

CF Total

–3,799

–2,208

–2,101

Paid tax by region 2016, % of Group

Paid tax by region 2016, % of Group (pie chart)Paid tax by region 2016, % of Group (pie chart)

TB4:2 Deferred tax liability

Deferred tax liability (+), tax asset (–)

SEKm

Value, January 1

Deferred tax expense

Other changes 2)

Translation differences

Value, December 31

1)

The closing deferred tax liability comprises deferred tax assets of SEK 1,465m (1,063; 1,186) and deferred tax liabilities of SEK 11,718m (11,076; 10,195).

2)

Other changes include deferred tax recognized directly in equity according to IAS 19 of SEK –436m, IAS 39 of SEK 184m, changes in tax risk provisions of SEK 575m, changes relating to divestments and acquisitions of SEK –221m and reclassifications of SEK 108m.

Intangible fixed assets

1,435

89

85

70

1,679

Property, plant and equipment

11,437

–234

524

285

12,012

Financial non-current assets

–89

180

–52

8

47

Current assets

–260

–42

20

–6

–288

Provisions

–497

–386

–127

–53

–1,063

Liabilities

–655

–290

367

–28

–606

Tax credits and tax loss carryforwards

–1,405

526

–541

–69

–1,489

Other

47

–23

–66

3

–39

BS Total 1)

10,013

–180

210

210

10,253

Loss carryforwards

Future tax credit and loss carryforwards for which deferred tax assets were recognized have been reported at the tax amount of SEK 1,489m in TB4:2.

Loss carryforwards for which no deferred tax assets were recognized amounted to SEK 4,687m (2,649; 2,644) gross at December 31, 2016. The expiry dates of these loss carryforwards are distributed as follows.

The change in uncapitalized loss carryforwards for the period includes SEK 85m that has expired and SEK 64m that was either utilized or capitalized. The tax value of uncapitalized tax loss carryforwards amounted to SEK 1,382m (779; 812).

Loss carryforwards for which no deferred tax assets were recognized 31 December 2016

Year of maturity

SEKm

2017

85

2018

917

2019

1

2020

1

2021 and later

1,001

Indefinite life

2,682

Total

4,687