19.- TAX NOTE

Tax consolidation scheme

The Group operates in many countries and is therefore subject to the regulations of different tax jurisdictions regarding taxation and corporate income tax.

NH Hotel Group, S.A. and another 17 companies with tax domicile in Spain in which it held a direct or indirect stake of at least 75% during the 2019 tax period are subject to the tax consolidation scheme governed by Title VII, Chapter VI of Law 27/2014 on Corporate Income Tax.

The companies belonging to the tax group have signed an agreement to share the tax burden. Hence, the Parent Company settles any credits and debts which arise with subsidiary companies due to the negative and positive tax bases these contribute to the tax group.

The companies that make up the tax consolidation group are the following:

Corporation tax is calculated on the financial or accounting profit or loss resulting from the application of generally accepted accounted standards in each country, and does not necessarily coincide with the tax result, this being construed as the tax base.

In 2019, Spanish companies pay taxes at the general tax rate of 25% irrespective of whether they apply the consolidated or separate taxation schemes. The foreign companies are subject to the prevailing tax rate in the countries where they are domiciled. In addition, taxes are recognised in some countries at the estimated minimum profit on a complementary basis to Corporation Tax.

The prevailing corporation tax rates applicable to Group companies in the different jurisdictions where the Group has significant operations are as follows:

Financial years subject to tax inspection

In accordance with Spanish tax legislation, the years open for review to the Consolidated Tax Group are:

In Spain during 2019, a verification and investigation process partially began to reduce the Taxable Base of revenues from certain intangible assets referred to in article 23 of the TRLIS related to Corporation Tax for the years 2016 to 2018. The Company has recorded a provision of 1 million euros in 2019. In February 2020, the agreement that contained the settlement proposed by the inspection was signed, with no material differences between the proposed settlement and the contingency calculated and provided for.

In Germany, an inspection procedure has been opened which is reviewing the amount of negative tax bases still to be offset by the companies in Germany.

Another inspection procedure has been opened in Austria by the Austrian authorities who are checking the overall tax position of the subsidiary in that country.

Finally, an inspection procedure has been opened in Colombia focused on the deductions of certain Corporation Tax expenses.

The Group’s Directors do not expect any significant contingencies to arise from the conclusions of the inspections.

Regarding the financial years open to inspection in the rest of the group, contingent liabilities not susceptible to objective quantification may exist, which are not significant in the opinion of the Group’s Directors. Moreover, the company considers that there aren’t any significant uncertain tax positions.

 

Balances with Public Administrations

The composition of the debit balances with Public Administrations at 31 December 2019 and 2018 is as follows:

The movements of the “Deferred tax assets” item in 2019 and 2018 were as follows:

All these impacts have had an effect on the Consolidated Profit and Loss Statement except for the initial impact from the first application of IFRS 16 and other non-significant ones that have resulted in changes to the consolidated statement of changes in equity.

The increase in deferred tax assets is mainly due to IFRS 16 on leases being adopted in 2019 (See Note 2.1.1 and Note 9).

Additionally, in 2019 there were assets recognised due to the activation of tax losses in Germany and Ireland amounting to 1,857 and 70 thousand euros respectively, as a result of the positive results expected in future years.

The cancellation of assets is mainly due to the cancellation of tax losses to offset the positive tax bases generated in 2019, in Luxembourg, Belgium, Germany and Latin America, amounting to 906, 94, 2,253 and 260 thousand euros, respectively. Additionally, in Spain, at 31 December 2019, it has been updated the recovery plan for tax credits, which back up the capitalization of such tax credits. As a consequence of the aforementioned, the Directors of the Parent Company has decided to impair tax assets for 7,153 thousand euros. However, this impact has been offset by the recovery during the year of part of the financial burden not deducted in previous years, which has led to a less current tax expense in the Group.

At 31 December 2019, the Group had assets resulting from tax losses and deductions amounting to 83,881 thousand euros (92,185 thousand euros in 2018). At 31 December 2019, the tax credit recovery plan that supports the recognition of these tax credits had been updated. As a result of said update, and pursuant to that previously stated, the Directors of the Parent Company decided to impair the asset by 7,153 thousand euros.

At 31 December 2019, the Group had tax loss carryforwards worth 594,222 thousand euros (593,041 thousand euros at 31 December 2018) and deductions amounting to 27,695 thousand euros (27,020 thousand euros in 2018) that had not been entered in the accompanying consolidated balance sheet because the Directors considered they did not meet accounting standard requirements. These assets are grouped as follows (base amount):

Finance costs, which are not considered deductible in the Spanish corporate income tax when exceeding 30% of the operating revenue of the tax group calculated in accordance with Article 16 of Law 27/2014 of 27 December, on Corporate Income Tax, amount to 191,799 thousand euros in 2019 (256,170 thousand euros in 2018). There is no deadline for offsetting non-deductible finance costs.

The variation in unrecorded credits in 2019 is mainly due to the fact that financial expenses in Spain were not deducted in previous periods by application of the aforementioned regulations. The reduction of non-deducted financial expenses is offset by the higher amount of negative tax bases not activated in Spain and the United States. Pursuant to the above, in Spain tax credits activated for 7,153 thousand euros we cancelled, which represents a 28,509 thousand euro increase in non-activated negative tax bases. To this, negative tax bases generated by the Spanish Tax Group in 2019 for 9,724 thousand euros that have not been activated are added.

The composition of the credit balances with Public Administrations at 31 December 2019 and 2018 is as follows:

The movements in deferred tax liabilities during 2019 are as follows:

The reduction in deferred tax liabilities is mainly due to the reversal of impairment on revalued assets. In addition, the deferred tax liability associated with the revaluation of assets in Argentina due to application of IAS 29 has decreased by 1,177 thousand euros (see Notes 2.4 and 4.23).

The detail, by country and item, of these deferred taxes is as follows:

Reconciliation of the accounting result to the tax result

The reconciliation between the consolidated comprehensive profit or loss statements, the corporation tax base, current and deferred tax for the year, is as follows:

Deductions generated by the consolidated tax group of the Parent Company

At 31 December 2019, the Tax Group held the following tax credits carryforward (thousand euros):