CaixaBank

25.1

Tax consolidation
The consolidated tax group for Income Tax includes CaixaBank, as the parent, and subsidiaries include Spanish companies in the commercial group that comply with the requirements for inclusion under regulations, including the ”la Caixa” Banking Foundation and CriteriaCaixa. The other companies in the commercial group file taxes in accordance with applicable tax legislation.

Similarly, CaixaBank and some of its subsidiaries have belonged to a consolidated tax group for value added tax (VAT) since 2008, the parent company of which is CaixaBank.
25.2

Exercises subject to tax inspection
On 24 July 2018, the Spanish tax authorities notified CaixaBank of the beginning of an inspection for the main taxes applicable to it for the years 2013 to 2015, inclusive.

Accordingly, CaixaBank has the year 2016 and following years open for review for the main taxes applicable, and BPI has the year 2017 and following years open for review for the main taxes applicable. Furthermore, as the successor of Banca Cívica and the savings banks that formerly contributed their assets comprising the financial activity to Banca Cívica, Banco de Valencia and Barclays Bank, these institutions are open to inspection for the main taxes applicable to them from 2010 and beyond.

The various interpretations that can be drawn from the tax regulations governing transactions carried out by financial institutions may give rise to certain contingent tax liabilities that cannot be objectively quantified. The Group’s management considers that the provision under “Provisions - Pending legal issues and tax litigation” in the balance sheet is sufficient to cover these contingent liabilities.
25.3

Reconciliation of accounting profit to taxable profit

The Group's reconciliation of accounting profit to taxable profit is presented below:

Reconciliaton of accounting profit to taxable profit (Millions of euros)
	2019	2018	2017
Profit / (Loss) before tax (A)	2,077	2,807	2,098
Adjustments to profit / (Loss)	(581)	(960)	(881)
Return on equity instruments (1)	(156)	(134)	(99)
Share of profit / (Loss) of entities accounted for using the equity method (1)	(425)	(826)	(526)
Negative goodwill	0	0	(256)
Taxable income / (tax Loss)	1,496	1,847	1,217
Tax payable (taxable income * 30%)	(449)	(554)	(365)
Adjustments:	74	(165)	(28)
Changes in taxation of sales and gains / (Losses) of portfolio assets	22	(155)	(5)
Changes in portfolio provisions excluding tax effect and other non-deductible expenses	0	(55)	(18)
Cancellation of deferred tax assets and liabilities	51	(1)	17
Recognition of deferred tax assets and liabilities	(13)	63	1
Effect on tax expense of jurisdictions with different tax rates (2)	11	7	4
Tax	40	0	0
Withholdings from foreign dividends and other	(37)	(24)	(27)
Income tax (B)	(369)	(712)	(378)
Income tax for the year (revenue / (expense))	(374)	(719)	(393)
Tax rate (3)	25.0%	38.9%	32.2%
Income tax adjustments (2018/2017/2016)	5	7	16
Profit / (Loss) after tax from continuing operations (A) + (B)	1,708	2,095	1,720

(1) Income to a large extent exempt from tax due to already having been taxed at source.

(2) Practically all of CaixaBank’s income and expense is taxed at the general Corporation Tax rate of 30% in the case of the businesses in Spain, and around 27% for the businesses in Portugal.

(3) The effective tax rate is calculated by dividing income tax for the year by taxable income.

25.4

Deferred tax assets and liabilities

The changes in the balance of these headings is as follows:

Changes in deferred tax assets (Millions of euros)
	31-12-2016	Regularisations	Additions due to business combinations	Additions	Disposals	31-12-2017	1st Applicatio of IFRS 9	Regularisations	Additions	Disposals	31-12-2018	Regularisations	Additions	Disposals	31-12-2019
Pension plan contributions	471	25	96		(9)	583		18		(7)	594			(19)	575
Allowances for credit losses	4,103	76	123		(57)	4,245	(8)	(24)		(88)	4,125			(11)	4,114
Allowances for credit losses (IFRS 9)						0	251			(84)	167	(62)		(52)	53
Early retirement obligations	42				(15)	27				(9)	18			(8)	10
Provision for foreclosed property	1,186	25			(176)	1,035		11		(102)	944			(2)	942
Credit investment fees	11	(2)			(1)	8		(1)			7			(2)	5
Unused tax credits	1,221	(23)			(135)	1,063		(139)			924	20		(34)	910
Tax loss carryforwards	1,179	348	30	43	(9)	1,591		54			1,645	19		(16)	1,648
Assets measured at fair value through equity	33		15	8		56			48		104			(8)	96
Others from business combinations	50		164		(19)	195		2		(54)	143			(51)	92
Other *	1,307	74	173	500	(652)	1,402		30	145	(207)	1,370	(17)	140	(102)	1,391
Total	9,603	523	601	551	(1,073)	10,205	243	(49)	193	(551)	10,041	(40)	140	(305)	9,836
Of which: monetisable	5,802					5,891					5,680				5,641

Change in deferred tax liabilities (Millions of euros)
	31-12-2016	Regularisations	Additions due to business combinations	Additions	Disposals	31-12-2017	1st Application of IFRS 9	Regularisations	Additions	Disposals	31-12-2018	Regularizaciones	Additions	Disposals	31-12-2019
Revaluation of property on first time application of IFRS	242				(6)	236		(4)		(17)	215			(13)	202
Assets measured at fair value through equity	223		6		(37)	192				(116)	76		136		212
Intangible assets from business combinations	57				(14)	43				(10)	33			(20)	13
Mathematical provisions	271				(67)	204					204				204
Others from business combinations	251		61		(32)	280		4		(51)	233			(32)	201
Others (*)	207	5	52	56	(53)	267			87		354	15	4	(147)	226
Total	1,251	5	119	56	(209)	1,222	0	0	87	(194)	1,115	15	140	(212)	1,058

(*) Includes, inter alia, eliminations from intra-group operations and those corresponding to different provisions, and other adjustments due to differences between accounting and tax rules.

The Group does not have any significant unrecognised deferred tax assets.

Twice per year, in collaboration with an independent expert, the Group assesses the recoverable amount of its recognised deferred tax assets in the balance sheet, on the basis of a budget consisting in a 5-year horizon with the forecasted results used to estimate the recoverable value of the different CGU of the Group (see Note 19) and forecast, subsequently, applying a sustainable net interest income (NII) to the average total assets and a normalised cost of risk (CoR) of 1.6% and 0.39%, respectively.

The type of deferred tax assets segregated by jurisdiction of origin are set out below:

Type of deferred tax assets recognised in the balance sheet (Millions of euros)
	Timing differences	Of which monetisable	Tax loss carryforwards	Unused tax credits
Spain	7,038	5,532	1,628	910
Portugal	240	109	20
Other
Total	7,278	5,641	1,648	910

(*) These correspond to monetisable timing differences with the right to conversion into a credit with the Treasury.

The Group estimates that deferred tax assets registered arising from tax credits from tax loss carryforwards, deductions and non-monetisable timing differences corresponding to Spanish jurisdiction, will have recovered in a maximum period of 15 years.

The Company carries out sensitivity analyses on the key flow projection assumptions of the recovery model (see Note 19) with no significant variations concluded in the estimated term in the baseline scenario.

The predictability of exercises to evaluate the recoverability of tax assets, which have been carried out since 2014, is strengthened by backtesting exercises, which result in high explainability.

In light of the existing risk factors (see Note 3) and the reduced deviation with respect to the estimates used to elaborate the budgets, the Administrators consider that, despite the limitations for applying different monetisable timing differences, tax loss carryforwards and unused tax credits, the recovery of all activated tax credits is still probable with future tax benefits.

25.5

Other
As per Article 42 of the consolidated text of the Corporation Tax Law, the tax credit for reinvestment of profit is provided in Appendix 4.