HERMÈS - 2018 Registration document

Consolidated financial statements Notes to the consolidated financial statements

9.2 Rationalisation of income tax expense The effective tax rate was 32.5% as at 31 December 2018, compared with 35.4% as at 31 December 2017. The difference between the theoretical tax expense and the actual tax expense is explained as follows:

2018

2017

In millions of euros

Net income attributable to owners of the parent

1,404.6

1,221.5

Net income from associates

16.6 (5.0)

5.3

Net income attributable to non-controlling interests

(4.3)

Tax expense

(670.0) 2,063.1 32.5% 34.4% (710.3)

(669.3) 1,889.8 35.4% 34.4% (650.6)

Net income before tax

Effective tax rate

Current tax rate in France 1 Theoretical tax expense

Reconciliation items: s s differences relating to foreign taxation (primarily the tax rate)

136.5 (96.2)

79.3

s s permanent differences and other 2

(98.0)

TOTAL

(670.0)

(669.3)

(1) The tax rate applicable in France is the basic rate of 33.33% increased by the social contribution of 3.3%, i.e. a total of 34.43%. (2) This line includes permanent differences, the effect on the tax expense of income taxed at reduced and increased tax rates, tax loss carry forwards used/non- activated, the tax on dividends and prior year adjustments. In 2018, the €52.7 million gain realised on the disposal of the Galleria premises (see Note 7) is not taxable, leading to a reduction of 0.8 pt on the tax rate.

The Group’s companies are regularly audited by the tax authorities of the countries in which they operate. In particular, on31December 2018, two French companies of theGroup received reassessment proposals mainly relating to corporate income tax.

After consulting its legal advisors, Hermès is continuing to challenge these reassessments and intends to seek redress using the means available to it for its defence. Hermès considers that risks, and uncertain legal positions are subject to appropriate debts, which amounts are reviewed, in coordination with its legal advisors, in accordance with the criteria of IAS 12 and IFRIC 23.

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9.3 Deferred tax

The net change in deferred tax assets and liabilities is broken down as follows:

2018

2017

In millions of euros

Deferred tax assets at 1 January Deferred tax liabilities at 1 January Net deferred tax assets at 1 January Impact on statement of profit or loss Impact of exchange rate movements

349.8

430.4

46.8

49.0

303.0

381.4

59.5

20.4

5.6

(18.5) (80.3) 303.0 349.8

43.7

Equity impact 1

Net deferred tax assets at the end of the period Balance of deferred tax assets at the end of the period Balance of deferred tax liabilities at the end of the period

411.8 447.7

35.9

46.8

(1) The equity impact primarily involves the deferred tax change resulting from revaluations recorded in equity (investments and financial investments and hedging of future cash flows) and in actuarial gains and losses on employee benefit obligations. These changes had no impact on net income for the year (see Note 21.4).

2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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