5. Taxation

in PLN millions, unless otherwise stated

Note 5.1 Income tax in the 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	863	742
5.1.1	Deferred income tax	54	0
	Current tax adjustments for prior periods	( 86)	( 32)
	Income tax	831	710

In 2017, KGHM Polska Miedź S.A. paid income tax in the amount of PLN 934 million (in 2016: PLN 468 million) to the appropriate tax office. Difference between the tax paid by the Company in 2017 as compared to the tax paid in 2016 is mainly due to change in the manner of payment of tax advances in 2017. In 2016, the Company used the option to quarterly pay the tax advances, and as the result the tax advances for the fourth quarter of 2016 was paid in January 2017. Also in 2016, the Company was refunded the excess tax paid in 2015 in the amount of PLN 119 million.

The table below presents an identification of differences between income tax from profit before tax and the income tax calculated according to the principles resulting from the Corporate Income Tax Act:

Reconciliation of effective tax rate

	2017	2016
Loss before tax	2 154	(3 375)
Tax calculated using the rate (2016: 19%, 2015: 19%)	409	(641)
Tax effect of non-taxable income	( 9)	( 8)
Tax effect of expenses not deductible for tax purposes, including:	517	1 391
impairment losses on investment in subsidiaries and allowances for impairment of loans granted to subsidiaries	168	1 105
the minerals extraction tax	335	254
Tax adjustments for prior periods	( 86)	( 32)

Income tax in profit or loss (effective tax rate amounted to: (21.04)% (in 2015 (43.86)%) of loss before tax)	831	710

Note 5.1.1 Deferred income tax

Accounting policies	Important 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 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 taxation authority.	The probability of realising the deferred tax assets with future tax income is based on the Company’s budget. The Company recognises deferred tax assets in its accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

Accounting policies

Important 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 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 taxation authority.

The probability of realising the deferred tax assets with future tax income is based on the Company’s budget. The Company recognises deferred tax assets in its accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

	2017	2016
Net deferred tax assets at the beginning of the period, of which:	140	141
Deferred tax assets at the beginning of the period	1 011	934
Deferred tax liabilities at the beginning of the period	(871)	(793)
Recognised in profit or loss	(54)	-
Recognised in other comprehensive income	(55)	(1)
Net deferred tax assets at the end of the period, of which:	31	140
Deferred tax assets at the end of the period	1034	1 011
Deferred tax liabilities at the end of the period	(1 003)	(871)

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

	2017	2016
Maturity over the 12 months from the end of the reporting period	(191)	( 114)
Maturity of up to 12 months from the end of the reporting period	222	254

Deferred tax assets and liabilities

Deferred tax assets	1 January 2016	Credited/(Charged)		31 December 2016	Credited/(Charged)		31 December 2017
Deferred tax assets	1 January 2016	profit or loss	other comprehensive income	31 December 2016	profit or loss	other comprehensive income	31 December 2017
Interest	2	7	-	9	11	-	20
Provision for decommissioning of mines and other technological facilities	177	( 22)	-	155	6	-	161
Measurement of forward transactions	90	(6)	-	84	( 1)	-	83
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	39	29	-	68	(10)	-	58
Future employee benefits	361	3	( 23)	341	11	25	377
Re-measurement of available-for-sale financial assets	97	11	-	108	-	-	108
Re-measurement of hedging instruments	26	-	31	57	-	(30)	27
Other	142	46	1	189	11	-	200
Total	934	68	9	1 011	28	( 5)	1034

Deferred tax liabilities	1 January 2016	(Credited)/Charged		31 December 2016	(Credited)/Charged		31 December 2017
Deferred tax liabilities	1 January 2016	profit or loss	other comprehensive income	31 December 2016	profit or loss	other comprehensive income	31 December 2017
Measurement of forward transactions	30	9	-	39	2	-	41
Re-measurement of hedging instruments	-	-	-	-	-	43	43
Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes	736	37	-	773	60	-	833
Re-measurement of available-for-sale financial assets	1	-	10	11	-	7	18
Other	26	22	-	48	20	-	68
Total	793	68	10	871	82	50	1 003

Note 5.2 Other taxes and charges

The following table presents the Minerals extraction tax with which the Company is charged.

	2017	2016	Basis for calculating tax	Tax rate	Presentation in the statement of profit or loss
Minerals extraction tax, of which:	1 765	1 338		weighted average tax rate calculated for every reporting period*	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 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 were as follows:

	2017	2016
Royalties	110	110
Excise tax	39	38
Real estate tax	153	142
Other taxes and charges	87	97
Razem	389	387

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 Company’s liabilities towards the Polish 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 Company’s liabilities towards the Polish 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
Tax assets	214	188

	2017	2016
Current corporate income tax liabilities	17	216
Liabilities due to taxes, social and health insurance and other benefits	399	420
Tax liabilities	416	636

Financial statements

Separate financial statements

Explanatory notes

Consolidated financial statements

Explanatory notes

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