UPM Annual Report 2018

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

7.

Income tax

7.1 Tax on profit for the year Income tax

Key estimates and judgements The group is subject to income taxes in numerous jurisdictions and the calculation of the group’s tax expense and income tax liabilities involves a degree of estimation and judgement. Tax balances reflect a current understanding and interpretation of existing tax laws. Management periodically evaluates positions taken in tax returns with respect of situations in which applicable tax regulation is subject to interpretation and adjusts income tax liabilities where appropriate.

Notional amounts of derivatives

Net fair values of derivatives calculated by counterparty

In 2018, tax on profit for the year amounted to EUR 342 million (212 million). The effective tax rate was 18.6% (17.9%). In 2018 and 2017, the effective tax rate was affected by the income not subject to tax from subsidiaries operating in tax free zone. In addition, effective tax rate was affected by German tax rate that is higher than in Finland. In 2018, accrued and paid withholding taxes relating to dividend payments of subsidiaries amounted to EUR 1 million (EUR 19 million). In 2017, changes in the United States tax legislation resulted in recognition of EUR 5 million tax expense relating to reassessment of deferred tax assets and liabilities. Change of recoverability of deferred tax assets includes EUR 8 million tax income related to reassessment of deferred tax assets on capital losses in the United States.

POSITIVE FAIR VALUES

NEGATIVE FAIR VALUES

NET FAIR VALUES

EURm

2018

2017

EURm 2018 2017

Interest rate forward contracts

1,129 1,223 753 1,056 2,524 2,298

245 210

–64

181 207

Interest rate swaps

–3

Forward foreign exchange contracts

Currency options

52

48

Cross currency swaps Commodity contracts

167

239 436

1,189

Cash collaterals pledged for derivative contracts totalled EUR 18 million of which EUR 17 million relate to commodity contracts and EUR 1 million to interest rate forward contracts.

7.2 Deferred tax

Income tax

EURm

2018

2017

EURm

2018

2017

Timing of nominal amounts of derivatives 2018

Deferred tax assets Intangible assets and property, plant and equipment

Current tax expense

243

224 –11 212

Within 1 year

Between 1-5 years

Later than 5 years

Total

Change in deferred taxes

99

76 62

90 41

Total

342

Inventories

EURm

2018

Retirement benefit liabilities and provisions

121

135

Foreign exchange risk Forward foreign exchange contracts Cash flow hedges

Tax rate reconciliation

Other temporary differences

24

19

Tax losses and tax credits carried forward

198 –83 397

222 –84 423

1,249

– –

– – –

1,249

EURm

2018

2017

Offset against liabilities

Net investment hedge Non-qualifying hedges Currency options Non-qualifying hedges Cross currency swaps Non-qualifying hedges

443 810

443 832

Total

Profit before tax

1,839

1,186

22

Computed tax at Finnish statutory rate 20% Difference between Finnish and foreign rates

368

237

Deferred tax liabilities Intangible assets and property, plant and equipment

30

18

52

–

–

52

Tax-exempt income

–63

–56

–181 –329

–186 –244

Non-deductible expenses

8 1 6

6

–

–

167

167

Forest assets

Withholding taxes

19

Interest rate risk Interest rate swaps Fair value hedges

Retirement benefit assets Other temporary differences

–7

–16 –95

Tax loss with no tax benefit

5

–101

Results of associates

–1

–1

–

– –

328

328 425

Offset against assets

83

84

Change in tax legislation

4

5

Non-qualifying hedges Cross currency swaps Fair value hedges Interest rate futures Non-qualifying hedges

425

–

Total

–535

–458

Change in recoverability of deferred tax assets Utilisation of previously unrecognised tax losses

–3

–15

–

–

167

167

Net deferred tax assets (liabilities)

–138

–36

–8

–7

Other items

–

1

1,129

–

–

1,129

Total income taxes Effective tax rate, %

342

212

Commodity risk Electricity sales Cash flow hedges Electricity purchase Cash flow hedges

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

18.6% 17.9%

286

157

–

443

294

368

–

662

Accounting policies The group’s income tax expense comprises current tax and deferred tax. Current tax is calculated on the taxable result for the period based on the tax rules prevailing in the countries where the group operates and includes tax adjustments for previous periods and withholding taxes deducted at source on intra-group transactions. Tax expense is recognised in the income statement, unless it relates to items that have been recognised in equity or as part of other comprehensive income. In these instances, the related tax expense is also recognised in equity or other comprehensive income, respectively.

Other commodities Non-qualifying hedges

84

–

–

84

Movements in deferred tax assets and liabilities

The nominals of cross currency swaps are included in both foreign exchange risk and interest rate risk.

EURm

2018

2017

Carrying value, at 1 January Charged to income statement

–36 –99

–11

11

Charged to other comprehensive income

–2 –1

–44

Exchange rate adjustments

8

Net deferred tax assets (liabilities)

–138

–36

166

167

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018