The Tax Group
On 29 September 2016, the companies of the PKP CARGO Group signed an agreement on the establishment of a tax group (hereinafter referred to as the “Tax Group”) for the period of three fiscal years starting from 1 January 2017. The Tax Group consists of:
- PKP CARGO S.A. – as the company representing the Tax Group;
- PKP CARGO SERVICE Sp. z o.o.;
- PKP CARGOTABOR Sp. z o.o.;
- PKP CARGOTABOR USŁUGI Sp. z o.o.;
- PKP CARGO Centrum Logistyczne Małaszewicze Sp. z o.o.;
- PKP CARGO Centrum Logistyczne Medyka-Żurawica Sp. z o.o.;
- PKP CARGO CONNECT Sp. z o.o.
PKP CARGO S.A. is the parent of the Tax Group and represents the Tax Group with respect to the obligations provided for in the CIT Act and the Tax Ordinance Act.
In accordance with the CIT Act, the tax groups are treated as separate CIT payers. Thus, the companies of the Tax Group lose their separate identity for the purposes of CIT for the benefit of the Tax Group as a whole. The taxable income of the Tax Group shall consist of the Tax Group total income calculated as surplus of the total amount of income of all companies of the Tax Group over the sum of their losses. The individual identity of the Tax Group pertains solely to corporate income tax, and should not be understood as tantamount to a separate legal identity. Also, it does not affect the payment of any other taxes.
The companies of the Tax Group must meet a number of requirements such as, inter alia, appropriate value of equity, share of the Tax Group representative in equities of the Tax Group companies, lack of tax arrears, achieving specific level of profitability and execution of transactions with companies out of the Tax Group on an arm’s length basis only. Any breach of the above requirements shall entail dissolution of the tax group and loss of its tax payer status. As at 31 December 2018, the Tax Group satisfied the above requirements.
Income tax recognized in profit / loss
According to the legal provisions in effect, no differentiation of rates is expected in the future periods. Frequent differences of opinions as to legal interpretation of the tax regulations, both within the State bodies, and between the State bodies and enterprises, entail lack of certainty and give rise to conflicts. Therefore, the tax risk in Poland is much higher than usually observed in the countries with better developed tax systems. Tax returns may be subject to control for a period of five years, starting from the end of the year of the tax payment. As a result of such controls, the Group’s tax settlements may be increased by additional tax liabilities.
Deferred income tax recognized in other comprehensive income
Reconciliation of the effective tax rate
The corporate income tax rate effective in Poland in the years 2017 - 2018 amounted to 19%. In the case of the AWT Group companies, the relevant tax rates were as follows: 19% in the Czech Republic and 10% in Hungary.
Balance of deferred tax assets and liabilities
Deferred tax assets and liabilities are offset at the level of the financial statements of each Group company. Accordingly, the following values are presented in these Consolidated Financial Statements:
Movements in deferred tax before the set-off
As at 31 December 2018, deferred tax assets on account of tax losses for use in future periods represented loss of the Parent Company in the amount of PLN 139.7 million and of the subsidiaries in the amount of PLN 48.4 million. It will be possible to deduct tax losses in the amount of PLN 167.1 million within five fiscal years following the end of operation of the Tax Group. Other tax losses may be deducted within five fiscal years following the establishment of the Tax Group. According to the Parent Company Management Board, the risk as at 31 December 2018 that it will be impossible to realize the above assets is low.
Tax loss not recognized in calculation of deferred tax assets
The amount of tax losses not included in the calculation of deferred tax asset results from tax losses generated by the following companies:
In the financial year ended 31 December 2018, in connection with the registration of a change in the registered office of AWT CE s.r.o., the company lost the possibility of settling tax losses in the amount of PLN 43.2 million.
Expiration dates of the tax losses to which deferred tax assets were not applied as at 31 December 2018
Expiration dates of the tax losses to which deferred tax assets were not applied as at 31 December 2017