UPM Annual Report 2020

7. Income tax 7.1 Tax on profit for the year Income tax

Timing of nominal amounts of derivatives 2019

Between 1–5 years

Later than 5 years

Within 1 year

Total

EURm

2019

Key estimates and judgements

Foreign exchange risk Forward foreign exchange contracts Cash flow hedges

In 2020, tax on profit for the year amounted to EUR 169 million (234 million). The effective tax rate was 22.9% (17.9%). In 2020 and 2019, 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 and the loss of France subsidiary for which no deferred tax assets were recognised due to uncertainty of their utilisation. In 2020, accrued and paid withholding taxes relating to dividend payments of subsidiaries amounted to EUR 9 million (EUR 2 million). In 2020, tax losses with no tax benefit mainly relate to the losses resulting from the closure of UPM Chapelle paper mill in France. In 2019, change in recoverability of deferred tax assets included EUR 15 million tax income related to reassessment of deferred tax assets in Germany. Income tax

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. 7.2 Deferred tax

1,459

1,459

— —

— — —

298 734

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

298 724

10

24

24

—

—

172

—

—

172

Interest rate risk Interest rate swaps Fair value hedges

EURm

2020 2019 2018

334

— —

— —

334

Deferred tax assets Intangible assets and property, plant and equipment

—

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

—

77

77

76

172

—

—

172

Inventories

38

45

62

EURm

2020 2019

Retirement benefit liabilities and provisions

156 163 157 -170 421

148 103 180 -157 395

121

Current tax expense

141

181

Other temporary differences

24

1,729

1,729

—

—

Change in deferred taxes

28

53

Commodity risk Electricity sales

Tax losses and tax credits carried forward

198

Total

169

234

Offset against liabilities

-83

Total

397

390

Cash flow hedges

217

174

— —

Deferred tax liabilities Intangible assets and property, plant and equipment

35

Non-qualifying hedges Electricity purchase Cash flow hedges Other commodities Non-qualifying hedges

—

35

Tax rate reconciliation

-245

-249

-181

437

210

227

—

EURm

2020 2019

Forest assets

-352

-364

-329

Profit before tax

737 147

1,307

Retirement benefit assets Other temporary differences

-5

-7

-7

48

48

—

—

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

261

-132 170 -564 -143

-86

-101

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

1

16 -34

Offset against assets

157 -549 -153

83

Tax-exempt income

-29

Total

-535 -138

Non-deductible expenses

6 9

9 2 3

Net deferred tax assets (liabilities)

Withholding taxes

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.

Tax loss with no tax benefit

29

Results of associates

-1

—

Change in tax legislation

4 3

1

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

-12 -10

-3

Other items

2

-1

Total income taxes Effective tax rate, %

169

234

22.9 % 17.9 %

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.

196

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UPM ANNUAL REPORT 2020

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