This note covers the Group’s current and deferred income tax exposure, with corresponding impacts on the statement of profit or loss and other comprehensive income and the statement of financial position.

Amounts recognised in profit or loss

(in € million)

 

Year ended
31 Dec. 2019

 

Year ended
31 Dec. 2018

Current year

 

(74.3)

 

(64.2)

Adjustments for prior years

 

3.0

 

0.3

Current tax expense

 

(71.3)

 

(63.9)

Origination and reversal of temporary differences

 

33.1

 

62.2

Tax rate modifications

 

(2.0)

 

(7.0)

Adjustments for prior years

 

(0.9)

 

7.8

Deferred tax benefit

 

30.2

 

63.0

Income tax expense

 

(41.1)

 

(0.9)

Amounts recognised in other comprehensive income

The Group has recognised in other comprehensive income a deferred tax income of €1.4 million relating to defined benefit plans for the year ended 31 December 2019 (€2.1 million deferred tax income for the year ended 31 December 2018).

Reconciliation of effective tax expense

(in € million)

 

Year ended
31 Dec. 2019

 

Year ended
31 Dec. 2018

Profit/(loss) before income tax

 

148.0

 

(83.0)

Income tax using the Swiss tax rate 16%

 

(23.7)

 

13.3

Effect of tax rates in foreign jurisdictions

 

(0.9)

 

10.1

Non-deductible expenses

 

(6.7)

 

(6.3)

Tax exempt income

 

8.7

 

5.7

Withholding tax

 

(8.3)

 

(9.7)

Tax rate modifications

 

(2.0)

 

(7.0)

Unrecognised tax losses and temporary differences

 

(1.6)

 

(14.1)

Tax uncertainties

 

(4.8)

 

(0.1)

Tax on undistributed profits

 

(3.9)

 

(0.9)

Adjustments for prior years

 

2.1

 

8.1

Total income tax expense

 

(41.1)

 

(0.9)

Current tax assets and liabilities

Current tax assets of €1.2 million as of 31 December 2019 (€1.0 million as of 31 December 2018) represent the amount of income taxes recoverable with respect to current and prior periods and arise from the payment of tax in excess of the amounts due to the relevant tax authorities. Current tax liabilities of €43.5 million as of 31 December 2019 (€25.6 million as of 31 December 2018) represent the amount of income taxes payable with respect to current and prior periods.

Current tax liabilities include an amount of €6.3 million (€3.8 million as of 31 December 2018) for prior periods that will be reimbursed by Reynolds Group Holdings Limited and its subsidiaries (“RGHL”, the owner of the SIG Group prior to 13 March 2015) in line with the share purchase agreement that was signed when Onex acquired the SIG Group in 2015. The same amount has been recognised as part of other receivables.

Recognised deferred tax assets and liabilities

(in € million)

 

As of
31 Dec. 2019

 

As of
31 Dec. 2018

Included in the statement of financial position as:

 

 

 

 

Deferred tax assets

 

21.8

 

12.1

Deferred tax liabilities

 

(172.5)

 

(187.8)

Total recognised net deferred tax liabilities

 

(150.7)

 

(175.7)

The table below provides details about the components of deferred tax assets and liabilities.

(in € million)

 

Property, plant and equipment

 

Intangible assets

 

Employee benefits

 

Tax loss carry-forwards

 

Other items

 

Net deferred tax assets/(liabilities)

Carrying amount as of 1 Jan. 2018

 

(92.9)

 

(176.3)

 

(1.9)

 

7.7

 

38.8

 

(224.6)

Recognised in profit or loss

 

(2.1)

 

35.0

 

0.4

 

2.4

 

27.3

 

63.0

Recognised in other comprehensive income

 

 

 

2.1

 

 

 

2.1

Other movements

 

 

 

 

 

(13.6)

 

(13.6)

Effect of movements in exchange rates

 

(1.3)

 

(0.5)

 

(1.3)

 

0.6

 

(0.1)

 

(2.6)

Carrying amount as of 31 Dec. 2018

 

(96.3)

 

(141.8)

 

(0.7)

 

10.7

 

52.4

 

(175.7)

Carrying amount as of 1 Jan. 2019

 

(96.3)

 

(141.8)

 

(0.7)

 

10.7

 

52.4

 

(175.7)

Additions through business combination

 

(1.2)

 

(2.9)

 

1.1

 

 

0.5

 

(2.5)

Recognised in profit or loss

 

3.1

 

20.3

 

2.3

 

(5.7)

 

10.2

 

30.2

Recognised in other comprehensive income

 

 

 

1.4

 

 

 

1.4

Effect of movements in exchange rates

 

(3.2)

 

(2.5)

 

(1.9)

 

(0.3)

 

3.8

 

(4.1)

Carrying amount as of 31 Dec. 2019

 

(97.6)

 

(126.9)

 

2.2

 

4.7

 

66.9

 

(150.7)

The net deferred tax assets for other items mainly relate to inventories, receivables, deferred revenue and derivatives. The Group reclassified in the year ended 31 December 2018 an amount of €13.6 million from current tax liabilities to deferred tax liabilities relating to its tax liability for unremitted and distributable earnings. The impact of this reclassification is presented in “Other movements” in the table above. The reclassification is made on a prospective basis as the nature of the change does not represent a correction of a material prior year error.

Unrecognised deferred tax assets

Deferred tax assets have not been recognised with respect to tax losses in the amount of €20.8 million as of 31 December 2019 (€23.0 million as of 31 December 2018) because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. The unrecognised tax losses do not expire under the current applicable tax legislation.

Accounting policy

Income tax expense is comprised of current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or in other comprehensive income.

For subsidiaries in which the profits are not considered to be permanently reinvested, the additional tax consequences of future dividend distributions are recognised as income tax expense.

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect to previous years. Current tax assets and liabilities are only offset if certain criteria are met.

Deferred tax

Deferred tax is recognised, using the balance sheet method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and joint arrangements to the extent that they probably will not reverse in the foreseeable future and the Group is in a position to control the timing of the reversal of the temporary differences. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on tax rates that have been enacted or substantively enacted at the reporting date.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Group. The recoverability of deferred tax assets is reviewed at each reporting date. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax assets and liabilities are only offset if certain criteria are met.

Significant judgements and estimates

Determining the Group’s worldwide income tax liability requires significant judgement and the use of estimates and assumptions, some of which are highly uncertain. Each tax jurisdiction’s laws are complex and subject to different interpretations by the taxpayer and the respective tax authorities. Significant judgement is required in evaluating the Group’s tax positions, including evaluating uncertainties. To the extent actual results differ from these estimates relating to future periods, and depending on the tax strategies that the Group may implement, the Group’s financial position may be directly affected.

Deferred tax assets represent deductions available to reduce taxable income in future years. The Group evaluates the recoverability of deferred tax assets by assessing the adequacy of future taxable income, including reversal of taxable temporary differences, forecasted earnings and available tax planning strategies. Determining the sources of future taxable income relies heavily on the use of estimates. The Group recognises deferred tax assets when the Group considers it probable that the deferred tax assets will be recoverable.