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 18 companies with tax domicile in Spain in which it held a direct or indirect stake of at least 75% during the 2020 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 2020, 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:

In Spain during 2020, the Tax Administration began a partial verification process to reduce the taxable base of revenues from certain intangible assets referred to in article 23 of the Corporation Tax Act, which had commenced in 2019 and includes the years 2016 to 2018. This verification by the Administration validated the application of the incentive in the Spanish tax group, but amended some points of the calculation method. The result was a cash outflow of 619 thousand euros for tax payable and interest. The verification did not give rise to sanctions being imposed. Furthermore, for the Tax group in Spain, the verification involved consumption of activated tax credits of 263 thousand euros. Given that the company had recorded a provision of 1 million euros in the previous tax year, the impact on the corporation tax heading on the profit and loss account was income of 123 thousand euros.

In Germany, an inspection procedure has been opened which is reviewing the amount of negative tax bases still to be offset by the companies. Furthermore, a verification file is open for all the taxes in some of the German companies which covers the 2015 to 2018 financial years.

The inspection process at the subsidiary company in Austria was finalised in the 2020 financial year. The final settlement lead to a cash outflow of 126 thousand euros which will be paid up in 2021. The verification did not involve sanctions being imposed.

The verification process in Portugal was finalised in the 2020 financial year, with the result of tax payable and interest of 165 thousand euros. This amount was paid in 2020 itself.

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 are no significant uncertain tax positions.

 

Balances with Public Administrations

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

The movements of the “Deferred tax assets” heading in the year were as follows:

All these impacts have had an effect on the consolidated comprehensive profit and loss statements, apart from the change due to the entry into the scope of consolidation arising from the agreement reached with Boscolo Hotels to integrate eight hotels in Italy, Hungary, the Czech Republic and France into the NH Group, and some insignificant impacts that involved change to the consolidated statements of changes in equity.

The increase in deferred tax assets is mainly due to the generation of assets due to tax losses as a result of the losses in 2020 caused by the slump in the sector due to the impact of the worldwide health crisis.

At 31 December 2020, the Group had assets resulting from tax losses and deductions amounting to 132,377 thousand euros (83,881 thousand euros in 2019). Out of the total tax credits, 79,067 thousand euros relates to credits activated in Spain. In accordance with the above, no tax credits were generated due to the loss generated in 2020 in the Spanish tax group.

In the 2020 financial year, the movement of tax credit assets was 48,496 thousand euros. The increase in tax credits was due to the activation of the loss for the financial year, mainly in Germany (20,872 thousand euros), Italy (14,659 thousand euros), Benelux (4,599 thousand euros), Portugal (3,759 thousand euros) and Latin America (3,526 thousand euros). To activate these credits, the relevant plans for tax credit recovery were prepared to support their activation. There was no additional activation of credits for tax losses in the Spanish tax group.

At 31 December 2020, the Group had tax loss carryforwards worth 745,474 thousand euros (594,222 thousand euros at 31 December 2019) and deductions amounting to 29,136 thousand euros (27,695 thousand euros in 2019) 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 205,337 thousand euros in 2020 (191,799 thousand euros in 2019). There is no deadline for offsetting non-deductible finance costs.

The change to the credits not recorded in the 2020 financial year is mainly due to the negative tax base generated in Spanish tax group’s loss in the year (86,153 thousand euros) which was not activated.

The composition of the creditor balances with Public Administrations at 31 December is as follows:

The movements in deferred tax liabilities during the year were as follows:

The reduction in deferred tax liabilities is mainly due to the allotment of impairment to revalued assets in the moment of the acquisition. In addition, liabilities have increased by 11,458 thousand euros as a result of the entry of eight hotels in Italy, Hungary, the Czech Republic and France into the scope of consolidation after the agreement reached with Boscolo Hotels (Note 6).

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