5. Taxation

in PLN millions, unless otherwise stated

Note 5.1 Income tax in the consolidated statement of profit or loss

Accounting policies
Income tax recognised in profit or loss comprises current tax and deferred tax. Current income tax is calculated in accordance with current tax laws.

Income tax

Note		2017	2016
	Current income tax	977	810
5.1.1	Deferred income tax	( 117)	( 125)
	Tax adjustments for prior periods	(86)	( 37)
	Income tax	774	648

In 2017, the Group’s entities paid income tax in the amount of PLN 983 million (in 2016: PLN 451 million) to appropriate tax offices.

The table below presents an identification of differences between income tax from profit before tax for the Group and the income tax which could be achieved if the Parent Entity’s tax rate was applied:

Reconciliation of effective tax rate

	2017	2016
Profit/(Loss) before tax	(2 299)	(3 801)
Tax calculated using the Parent Entity’s rate (2016: 19%, 2015: 19%)	437	( 722)
Effect of applying other tax rates abroad	( 177)	( 470)
Tax effect of non-taxable income	( 340)	( 140)
Tax effect of expenses not deductible for tax purposes:	547	1 359
impairment losses on the KGHM INTERNATIONAL LTD. Group’s assets	168	1 105
minerals extraction tax, which is not deductible for corporate income tax purposes	335	254
Deductible temporary differences on which deferred tax assets were not recognised	659	619
Utilisation of previously-unrecognised tax losses	( 352)	( 2)
Other	-	4
Income tax in profit or loss [effective tax rate amounted to (17.1)% (in 2015: 2.2%) of loss before tax]	774	648

In Poland, tax bodies are empowered to audit tax declarations for a period of five years, although during this period companies may offset tax assets with tax liabilities being the income of the State Treasury (including due to current income tax). In Canada, tax declarations may be audited for a period of three years without the right to offset assets with liabilities due to current income tax.

Note 5.1.1 Deferred income tax

Accounting policies	Significant estimates and assumptions
Deferred tax is determined using tax rates and tax laws that are expected to be applicable when the asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred tax liabilities and deferred tax assets are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the exception of temporary differences arising from initial recognition of assets or liabilities in transactions other than business combinations. Deferred tax assets are recognised if it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilised. Deferred tax assets and deferred tax liabilities are offset if the company has a legally enforceable right to set off current tax assets and current tax liabilities, and if the deferred tax assets and deferred tax liabilities relate to income taxes levied on a given entity by the same tax authority.	The probability of realising the deferred tax assets with future tax income is based on the budgets of the companies of the Group. Companies of the Group recognise deferred tax assets in their accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Companies of the Group which historically have generated losses, and whose financial projections do not foresee the achievement of taxable profit enabling the deduction of deductible temporary differences, do not recognise deferred tax assets in their accounting books.

Accounting policies

Significant estimates and assumptions

Deferred tax is determined using tax rates and tax laws that are expected to be applicable when the asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax liabilities and deferred tax assets are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the exception of temporary differences arising from initial recognition of assets or liabilities in transactions other than business combinations.
Deferred tax assets are recognised if it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilised.

Deferred tax assets and deferred tax liabilities are offset if the company has a legally enforceable right to set off current tax assets and current tax liabilities, and if the deferred tax assets and deferred tax liabilities relate to income taxes levied on a given entity by the same tax authority.

The probability of realising the deferred tax assets with future tax income is based on the budgets of the companies of the Group. Companies of the Group recognise deferred tax assets in their accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.
Companies of the Group which historically have generated losses, and whose financial projections do not foresee the achievement of taxable profit enabling the deduction of deductible temporary differences, do not recognise deferred tax assets in their accounting books.

	2017	2016
Net deferred tax liabilities at the beginning of the period, of which:	( 52)	( 157)
Deferred tax assets	511	557
Deferred tax liabilities	( 563)	( 714)
Recognised in profit or loss	117	125
Recognised in other comprehensive income, due to:	( 23)	( 20)
deferred income tax	( 55)	1
exchange differences from translation of deferred income tax of foreign operations	32	( 21)
Deferred income tax at the end of the period, of which:	42	( 52)
Deferred tax assets	389	511
Deferred tax liabilities	( 347)	( 563)

Maturities of deferred tax assets and deferred tax liabilities were as follows:

	Deferred tax assets		Deferred tax liabilities
	2017	2016	2017	2016
Maturity over the 12 months from the end of the reporting period	120	200	329	543
Maturity of up to 12 months from the end of the reporting period	269	311	18	20
Total	389	511	347	563

Expiry dates of unused tax losses and tax credits, for which deferred tax assets were not recognised in individual countries were presented in the following table:

	2017				2016
	Unused tax losses	Expiry date	Unused tax credits	Expiry date	Unused tax losses	Expiry date	Unused tax credits	Expiry date
Luxembourg	3 619	2020	-	-	4 384	2020	-	-
Chile	924	undefined	-	-	1 197	undefined	-	-
Canada	515	2032-2037	44	2015-2021	1 206	2032-2036	53	2015-2021
Other	188	-	132	-	258	-	116	-
Total	5 246		176		7 045		169

As at 31 December 2017, the Parent Entity did not recognise deferred tax liabilities on taxable temporary differences in the amount of PLN 1 185 million (as at 31 December 2016: PLN 1 116 million) related to investments in subsidiaries and shares in joint ventures, as the conditions stipulated in IAS 12.39 were met.

Deferred tax assets

	1 January 2016	Credited/(Charged)			31 December 2016	Credited/(Charged)			31 December 2017
	1 January 2016	profit or loss	other comprehensive income	exchange differences from translation of foreign operations	31 December 2016	profit or loss	other comprehensive income	exchange differences from translation of foreign operations	31 December 2017
Provision for decommissioning of mines and other technological facilities	177	( 21)	-	-	156	6	-	-	162
Measurement of forward transactions	91	( 7)	-	-	84	-	-	-	84
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	50	29	-	-	79	(10)	-	-	69
Future employee benefits	398	2	( 21)	-	379	12	26	-	417
Measurement of available-for-sale financial assets	99	11	-	-	110	(2)	-	-	108
Other	606	36	31	17	690	3	( 31)	( 23)	639
Total	1 421	50	10	17	1 498	9	(5)	(23)	1 479

Deferred tax liabilities

	1 January 2016	(Credited)/Charged			31 December 2016	(Credited)/Charged			31 December 2017
	1 January 2016	profit or loss	other comprehensive income	exchange differences from translation of foreign operations	31 December 2016	profit or loss	other comprehensive income	exchange differences from translation of foreign operations	31 December 2017
Measurement of forward transactions	33	9	-	-	42	-	-	-	42
Re-measurement of hedging instruments	-	-	-	-	-	-	43	-	43
Difference between the depreciation rates for accounting and tax purposes	1 113	( 109)	-	20	1 024	36	-	( 44)	1 016
Adjustments due to fair value measurement of KGHM INTERNATIONAL LTD. and realisation of adjustments to the end of the reporting period	281	( 125)	-	11	167	( 148)	-	( 18)	1
Other	151	150	9	7	317	4	7	7	355
Total	1 578	(75)	9	38	1 550	( 108)	50	( 55)	1 437

Note 5.2 Other taxes

The following table presents all of the minerals extraction taxes with which the Parent Entity is charged.

	2017	2016	Basis for calculating tax	Tax rate	Presentation in the consolidated statement of profit or loss
Minerals extraction tax, of which:	1 765	1 338		Weighted average tax rate calculated for every reporting period*	Taxes and charges in expenses by nature (note 4.1)
- copper	1 407	964	Amount of copper in produced concentrate, expressed in tonnes
- silver	358	374	Amount of silver in produced concentrate, expressed in kilogrammes

* in accordance with conditions specified by the Act dated 2 March 2012 on the minerals extraction tax

The minerals extraction tax paid by the Parent Entity is calculated from the amount of copper and silver in produced concentrate and depends on the prices of these metals as well as on the USD/PLN exchange rate. The tax is accounted for under manufacturing costs of basic products and is not deductible for corporate income tax purposes.

Other taxes and charges, with a breakdown by geographical location, were as follows:

	2017	2016
Poland	456	446
Real estate tax	188	178
Excise tax	110	111
Environmental fees	41	40
Other taxes and charges	19	29
Other countries	98	88
Other countries	44	67
Total	500	513

Note 5.3 Tax assets and liabilities

Accounting policies
Tax assets comprise current income tax assets and the settlement related to VAT. Assets not representing financial assets are initially recognised at nominal value and are measured at the end of the reporting period at the amount due. Tax liabilities comprise the Group’s liabilities towards the tax office arising from the corporate income tax, including due to the withholding tax, personal income tax and liabilities towards the Polish Customs Office due to the minerals extraction tax and the excise tax. Liabilities not representing financial liabilities are measured at the amount due.

Accounting policies

Tax assets comprise current income tax assets and the settlement related to VAT.

Assets not representing financial assets are initially recognised at nominal value and are measured at the end of the reporting period at the amount due.

Tax liabilities comprise the Group’s liabilities towards the tax office arising from the corporate income tax, including due to the withholding tax, personal income tax and liabilities towards the Polish Customs Office due to the minerals extraction tax and the excise tax.

Liabilities not representing financial liabilities are measured at the amount due.

	2017	2016
Current corporate income tax assets	41	47
Assets due to taxes, social and health insurance and other benefits	236	220
Tax assets	277	267

	2017	2016
Current corporate income tax liabilities	88	243
Liabilities due to taxes, social and health insurance and other benefits	542	543
Tax liabilities	630	786

Financial statements

Separate financial statements

Explanatory notes

Consolidated financial statements

Explanatory notes

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