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Note 9 Income taxes

Accounting principles

The Group income tax expense/benefit includes taxes of group companies based on taxable profit/loss for the period, together with tax adjustments for previous periods and the change in deferred income taxes.

 

Deferred income taxes are provided using the liability method, as measured with enacted, or substantially enacted, tax rates, to reflect the net tax effects of all temporary differences between the tax bases and the accounting bases of assets and liabilities. No deferred tax is recognised for the initial recognition of goodwill and the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction it affects neither accounting profit nor taxable profit. Deferred tax assets reduce income taxes payable on taxable income in future years. The deferred tax assets, whether arising from temporary differences or from tax losses, are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. 


 

Tax expense
Year Ended 31 December
EUR million 2017 2016
Current Tax -123 -131
Deferred Tax -5 -3
Total Tax -128 -134
Income tax rate reconciliation
Year Ended 31 December
EUR million 2017 2016
Profit before tax 742 541
Tax at statutory rates applicable to profits in the country concerned1 -147 -131
Non-deductible expenses and tax exempt income2 6 -16
Valuation of deferred tax assets -22 -4
Taxes from prior years -6 2
Changes in tax rates and tax laws 5 -2
Impairment of goodwill - -2
Profits from equity accounted investments 18 30
Other3 18 -11
Total Tax -128 -134
Effective Tax Rate 17.3% 24.8%
Statutory Tax Rate (blended) 19.8% 24.1%
1 Includes impact of EUR 9 million from countries with tax holidays and tax benefits in 2017 and impact of EUR -25 million from tax holidays and other tax benefits in 2016.
2 The tax value of non-deductible expenses of EUR 17 million has been netted against tax exempt income of EUR 23 million in 2017, and the tax value of non-deductible expenses of EUR 45 million has been netted against tax exempt income of EUR 29 million in 2016.
3 The 2017 figure includes an EUR 19 million release of deferred tax liabilities in relation to subsidiary dividend distribution as the distribution is not probable within the foreseeable future.

The statutory tax rate is a weighted average of the statutory tax rates prevailing in jurisdictions where Stora Enso operates.

Change in deferred taxes in 2017
EUR million Value at
1 Jan 2017
Income Statement OCI Acquisitions/ Disposals Translation difference Value at
31 Dec 2017
Fixed assets -176 12 - - 1 -163
Financial instruments -5 - -2 - - -7
Untaxed reserves -30 13 - - 2 -15
Pensions and provisions 46 10 -10 - - 46
Tax losses and tax credits carried forward 193 -64 - - -2 127
Other deferred taxes -17 16 - - 1 -
Total 11 -13 -12 - 2 -12
Equity hedges (CTA) 8 -8 - - -
Change in Deferred Tax 11 -5 -20 - 2 -12
Assets1 214 154
Liabilities1 -203 -166
1 Deferred tax assets and liabilities have been offset in accordance with IAS 12.
OCI = Other Comprehensive income, CTA = Cumulative Translation Adjustment
Change in deferred taxes in 2016
EUR million Value at
1 Jan 2016
Income Statement OCI Acquisitions/ Disposals Translation difference Value at
31 Dec 2016
Fixed assets -168 -16 - 2 6 -176
Financial instruments -2 - -3 - - -5
Untaxed reserves -42 9 - - 3 -30
Pensions and provisions 17 19 15 -6 1 46
Tax losses and tax credits carried forward 207 -15 - - 1 193
Other deferred taxes -18 2 - 4 -5 -17
Total -6 -1 12 - 6 11
Equity hedges (CTA) - -2 2 - - -
Change in Deferred Tax -6 -3 14 - 6 11
Assets1 246 214
Liabilities1 -252 -203
1 Deferred tax assets and liabilities have been offset in accordance with IAS 12.

The recognition of deferred tax assets is based on the Group’s estimations of future taxable profits available against which the group can utilise the benefits.

Tax losses
As at 31 December
Tax losses carried forward Recognised tax values Unrecognised tax values
EUR million 2017 2016 2017 2016 2017 2016
Expiry within five years 856 431 118 70 47 40
Expiry after five years 104 580 3 102 22 24
No expiry 1 059 1 185 6 20 234 249
Total 2 019 2 196 127 192 303 313

Tax losses of EUR 573 (EUR 801) million relate to Finland.

Non-recognised deferred tax assets on deductible temporary differences amounted to EUR 51 (EUR 59) million. There is no expiry date for these differences. Taxable temporary differences in respect of investments in subsidiaries, branches and associates and interests in joint ventures for which deferred tax liabilities have not been recognised amounted to EUR 214 (EUR 237) million.

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