EDF / 2020 Universal Registration Document

6 FINANCIAL STATEMENTS

Notes to the consolidated financial statements

9.1

Breakdown of tax expense

Details are as follows:

2020

2019*

(in millions of euros)

Current tax expense

(747) (198) (945)

(1,597)

Deferred taxes

65

TOTAL

(1,532)

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

In 2020, €(604) million of the current tax expenses relates to French companies, and €(143) million relates to other subsidiaries (€(1,519) million and €(78) million respectively in 2019).

9.2

Reconciliation of the theoretical and effective tax expense (tax proof)

2020

2019 (1)

(in millions of euros)

Income of consolidated companies before tax Income tax rate applicable to the parent company

1,293

6,393

32.02%

34.43% (2,201)

Theoretical tax expense Differences in tax rate (2) Permanent differences (3)

(414) (225)

232 162 118 156

6

Taxes without basis (4)

(27)

Unrecognised deferred tax assets (5)

(288)

Other

3

1

ACTUAL TAX EXPENSE EFFECTIVE TAX RATE

(945)

(1,532) 23.96%

73.10%

Restated for the impacts of IFRS 5 due to the change in scope of E&P operations (see note 1.4.2). (1)

The income tax expense amounts to €(945) million in 2020, corresponding to an effective tax rate of 73.10% (compared to €(1,532) million in 2019, corresponding to an effective tax rate of 23.96%). The €587 million decrease in the Group’s tax expense between 2019 and 2020 essentially reflects the €5,100 million decrease in net income before tax, generating a lower tax charge of €1,633 million; however, the unfavourable Council of State decision issued in December 2020 questioning the tax-deductibility of certain long-term liabilities of EDF SA has an impact of €538 million, including unrecognised tax assets of €(361) million due to the Group’s prudent policy concerning recognition of deferred taxes beyond a 10-year horizon; the unfavourable effect of the increase in the income tax rate from 17% to 19% in the United Kingdom; and the absence of any favourable effect of asset disposals in 2020 (after the sales of Alpiq and NnG in 2019). After elimination of these non-recurring items (principally fair value changes and unrealised gains and losses on financial assets, impairment, the consequences of tax litigation, and the impact of changes in the UK tax rate), the effective current tax rate for 2020 is 19.0%, compared to 18.0% in 2019.

The main factors explaining the difference between the theoretical tax rate and this effective rate are: 2020: ● (2) the unfavourable impact of tax rate differences amounting to €225 million, ❯ mainly explained by an increase in the UK income tax rate from 17% to 19% and the difference between the current tax rate (32.02%) and deferred tax rate in France (28.41% or 25.82%, depending on the timing of reversal of the temporary differences), (4) the economic impact of tax litigation, amounting to €(175) million, partly ❯ offset by the positive effect of deduction of payments made to bearers of perpetual subordinated bonds amounting to €162 million, (5) the effect of non-recognition of deferred tax assets, amounting to ❯ €(288) million, including €(361) million of deferred taxes recognised in connection with tax litigation (resulting from the future deductibility of expenses whose deductibility is temporarily being questioned), due to the Group’s prudent policy concerning recognition of deferred taxes beyond a 10-year horizon ; 2019: ● (2) the favourable impact of differences in tax rates between the French rate of ❯ 34.43%, the Italian rate of 24% and the British rate of 19%, amounting to €185 million, (3) the favourable impact of disposals of investments and assets subject to a ❯ reduced tax rate, amounting to €160 million (principally Alpiq and NnG), (4) the impact of deduction of payments made to bearers of perpetual ❯ subordinated bonds, amounting to €204 million.

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EDF - UNIVERSAL REGISTRATION DOCUMENT 2020