BPCE - 2018 Registration document

5 FINANCIAL REPORT

Statutory Auditors’ report on the consolidated financial statements

Groupe BPCE tax expense and recognition of current and deferred taxes

Risk identified and main judgements

Our response

The tax charge of Groupe BPCE includes both the one relative to tax payable and the deferred tax. Groupe BPCE records deferred tax when timing differences arise between the carrying amount of assets and liabilities on the balance sheet and their tax base, irrespective of when the tax is expected to be recovered or settled. Deferred tax assets are recognized for tax loss carry forwards to the extent that it is probable that the entity in question will generate future taxable profits against which these tax losses can be utilized only to the extent that it is probable that the entity will be able to recover them in the foreseeable future. Estimates of the ability to generate future taxable profits within this timeframe requires Management to exercise judgement when deciding whether to assessing the recoverability of recognized deferred tax assets but also the date, the expected switch and the tax rate implied. We deemed the determination of tax expense to be a key audit matter due to the sensitivity of the deferred tax to the assumptions and choices made by the Management. At December 31, 2018, the tax expense amounts to € 1,477 million of which € 870 million for current tax and € 607 million for deferred tax. € 3,174 million was recorded under deferred tax assets and € 884 million under deferred tax liabilities. See notes 11 to the consolidated financial statements for further details.

We familiarized ourselves with the changes in laws passed in the jurisdictions where Groupe BPCE operates and we verified the compliance of the valuation methods for determining tax payable and deferred tax with these changes. We reviewed the valuation process for deferred tax assets and, as a consequence, the tax rates in force. Considering the estimates of future taxable profits, we assessed the reliability of the process for preparing tax business plans which are the basis for the Group to assess the probability of recovering these deferred tax assets. We verified, with the assistance of our experts, the appropriateness of the methodology adopted by Management, to identify existing tax loss carry-forwards which will be used, either by deferred tax liabilities or, future taxable profits. On the basis of Management forecasts, we performed tests to verify the proper calculation of the deferred tax assets base as well as the relevance of the tax rate used. Our procedures also focused on verifying the accounting records of material transactions especially the ones impacting current tax and deferred tax.

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Registration document 2018