EDF / 2020 Universal Registration Document

6 FINANCIAL STATEMENTS

Notes to the consolidated financial statements

8.3

Other financial income and expenses

Other financial income and expenses comprise:

2020

2019*

(in millions of euros)

Financial income on cash and cash equivalents

35

17

Gains/(losses) on other financial assets (including loans and financial receivables)

181 691

248 878

Gains/(losses) on debt and equity securities

Changes in financial instruments carried at fair value through profit and loss

1,253 (102) (254)

2,338 (134)

Other financial expenses

Foreign exchange gain/loss on financial items other than debts

(7)

Return on fund assets

378 579

523 740

Capitalised borrowing costs

OTHER FINANCIAL INCOME AND EXPENSES

2,761

4,603

Restated for the impacts of IFRS 5 due to the change in scope of E&P operations finalised (see note 1.4.2). *

“Gains/(losses) on debt and equity securities” in 2020 principally include: €518 million of dividends and interest income on debt securities (€740 million ● in 2019); €173 million of net gains and losses on sales of debt securities carried at fair value ● through OCI with recycling (including 162 million on dedicated assets), compared to €138 million in 2019 (including €136 million on dedicated assets).

Other financial income and expenses include changes in fair value on financial instruments, amounting to €1,253 million. With the high market volatility, notably caused by the Covid-19 pandemic, this favourable overall change for the year was driven by a €1,214 million increase in the fair value of debt and equity securities (including €1,218 million relating to dedicated assets) and a €39 million increase in the fair value of derivatives. In 2019, changes in financial instruments carried at fair value through profit and loss amounted to €2,338 million, including €2,545 million relating to dedicated assets. The decrease in capitalised borrowing costs relates to the suspension of capitalisation of interim interest relating to Flamanville 3 between March and July (see note 1.4.1.3).

Note 9

Income taxes

Accounting principles and methods Income taxes include the current tax expense (income) and the deferred tax expense (income), calculated under the tax legislation in force in the countries where earnings are taxable. In compliance with IAS 12, current and deferred taxes are generally recorded in the income statement or in equity symmetrically to the underlying operation. Under IAS 32, income taxes on distributions to holders of equity instruments (notably dividends and the remuneration paid to holders of perpetual subordinated bonds) must be recognised in accordance with IAS 12. The Group considers that these distributions are paid out of previous years’ accumulated profits and as a result the associated tax effects are included in the net income for the period. In application of IFRIC 23, a tax asset or liability is recognised when there is uncertainty over income tax treatments. If the Group considers it likely that the tax authorities will not accept its chosen treatment, it recognises a tax liability, and if it considers it likely that the tax authorities will reimburse a tax that has already been paid, it recognises a tax asset. The tax assets and liabilities relating to these uncertainties are estimated on a case-by-case basis and stated at the most likely amount, or the weighted average of the various outcomes considered. These tax assets and liabilities are included in deferred taxes. The current tax expense (income) is the estimated amount of tax due on the taxable income for the period, calculated using the tax rates adopted at the year-end.

Deferred taxes result from temporary differences between the book value of assets and liabilities and their tax basis. No deferred taxes are recognised for temporary differences generated by: goodwill which is not tax deductible; ● the initial recognition of an asset or liability in a transaction which is not a ● business combination and does not affect the accounting profit or taxable profit (tax loss) at the transaction date; investments in subsidiaries and associates, investments in branches and ● interests in joint arrangements, when the Group controls the timing of reversal of the temporary differences, and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are valued at the expected tax rate for the period in which the asset will be realised or the liability extinguished, based on tax rates adopted at the year-end. If the tax rate changes, deferred taxes are adjusted to the new rate and the adjustment is recorded in the income statement, unless it relates to an underlying for which changes in value are recorded in equity, for example in accounting for actuarial gains and losses or fair value on hedging instruments and debt or equity securities. Deferred taxes are reviewed at each closing date, to take into account changes in tax legislation and the prospects for recovery of deductible temporary differences. Deferred tax assets are only recognised when it is probable that the Group will have sufficient taxable profit to utilise the benefit of the asset in the foreseeable future, or beyond that horizon, if there are deferred tax liabilities with the same maturity. Deferred tax assets and liabilities are reported on a net basis, determined at the level of a tax entity or tax group.

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EDF - UNIVERSAL REGISTRATION DOCUMENT 2020