Fiscal 2020 Universal Registration Document

ACCOUNTING PRINCIPLES AND POLICIES

Income tax expense

Income tax expense for the year includes current taxes and deferred taxes. It includes the cotisation sur la valeur ajoutée des entreprises (CVAE), a business tax assessed on corporate value-added generated by the French subsidiaries, which is reported under income tax expense because the Group considers that it meets the definition of a tax on income contained in IAS 12 “Income Tax”.

Tax credits which do not affect taxable profit and which are always refunded by the French government if they have not been deducted from corporate income tax (including the Competitiveness and Employment Tax Credit (CICE) introduced in France under the third amended 2012 Finance Bill) are recognized as subsidies and therefore deducted from the expenses to which they relate.

Uncertain income tax liabilities related to tax positions are estimated in accordance with IFRIC 23 “Uncertainty over income tax treatments”. As of September 1, 2019, the Group reclassified in Income tax payable its existing liabilities for uncertain tax treatment, which were included in Provisions until August 31, 2019. The accounting for uncertain tax treatments requires an entity to make estimates and judgments about whether the relevant taxation authority will accept the position taken by the entity in its tax fi lings (most likely amount or expected value corresponding to the probability-weighted average of the possible outcomes).

Deferred taxes

Deferred taxes are recognized on temporary differences between the carrying amount of an asset or liability and its tax base, using the tax rate that is expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that are enacted or substantially enacted at the period end.

Deferred taxes are not recognized on the following items:

• initial recognition of goodwill;
• initial recognition of an asset in a transaction that is not a business combination and that affects neither accounting profit nor taxable profit; and
• temporary differences on investments in subsidiaries that are not expected to reverse in the foreseeable future.

Taxes on items recognized directly in shareholders’ equity or in other comprehensive income are recognized in shareholders’ equity or in other comprehensive income, respectively, and not in the income statement.

Residual deferred tax assets on temporary differences and tax loss carry-forwards (after off set of deferred tax liabilities) are only recognized if their recovery is considered probable.

Deferred tax assets and liabilities are off set if there is a legally enforceable right to set off current tax assets and liabilities and the deferred taxes relate to the same taxable entity and tax authority.