15. Income tax expense

The Group entities are subject to corporate income tax. The amount of current tax liability of the Entities is transferred to the appropriate tax authorities. The final settlement of the corporate income tax liabilities of the Group entities for the year 2015 is made within the statutory deadline. According to regulations on considering tax liabilities as past due, tax authorities can verify the correctness of income tax settlements within 5 years from the end of the accounting year in which the tax declaration was submitted.

Deferred income tax asset/liability

KREDOBANK SA

The legal claim concerns the results of tax audit, which covered the period from 1 April 2011 to 30 September 2012. Legal claims mainly concern recognition of the costs related to the transaction of selling loans in the period covered by the inspection as tax deductible expenses, the adequacy of recognition of impairment allowances on loans, the correctness of the settlement of VAT on property sales and withholding tax for the payment of fees for services.

The value of disputed claims amounted to UAH 877 thousand (PLN 142 thousand) and the amount of reducing tax loss from previous years - UAH 626 282 thousand (PLN 101 583 thousand). In February 2013, KREDOBANK SA paid a part of the legal claims in the total amount of UAH 439 thousand (PLN 71 thousand). This value was included in subsequent appeal claims.

KREDOBANK SA appealed against the above-mentioned tax decision consecutive to the Regional State Tax Service and The Ministry of Revenue and Duties of Ukraine, and these appeals were rejected.

On 2 August 2013, KREDOBANK SA filed a claim against the results of the inspection and applying for annulling the above-mentioned tax decision. On 5 November 2013 the court of first instance issued a favourable verdict for KREDOBANK SA, which accepted a position of the Company, except the correctness of calculation of tax depreciation on tangible fixed assets in the total amount of UAH 336 thousand (PLN 54 thousand).

On 26 November 2013, the tax authority appealed to the court of second instance. On 2 April 2014 the court of appeal upheld the decision of the court of first instance favourable for KREDOBANK SA. On 15 April 2014 the tax authority filed a motion for cassation of this judgement to the Higher Administrative Court.

On 10 February 2015 Higher Administrative Court issued a favourable verdict for KREDOBANK SA, maintaining above-mentioned decisions of the court of the first and second instance. The judgement is legally valid. There is possible to appeal to the tax authority to Supreme Court of Ukraine.

All values were translated using the average NBP rate as at 31 December 2015 (0.1622 PLN/UAH).

PKO Leasing SA

As at 31 December 2015 entity PKO Bankowy Leasing Sp. z o.o. presented receivables in the amount of PLN 20 400 thousand resulting from the excessive VAT payment and penalty interest on tax arrears in connection with submitted in December 2014 corrections of VAT declaration for settlement periods from January 2011 to June 2013. On 7 January 2015 the Company settled the tax debt with penalty interest, and at the same time, applied on 26 January 2015 for recognition of excessive tax payment and tax refund.

On 6 February 2015 the Internal Revenue Service issued an unfavourable resolution for the Company on the settlement of excessive VAT payment and VAT refunds for settlement periods from January 2011 to June 2013, deciding that settlement of VAT refunds and excessive VAT payment on account of VAT arrears, according to art. 76a cl. 2 of the Tax Ordinance, is carried out on the date of submitting corrections of VAT declarations and filling a request for recognition of excessive tax payment.

On 19 February 2015 the Company filed a complaint to Head of the Tax Chamber and then, on 14 August 2015 filled a complaint to the Regional Administrative Court against the decision of the Internal Revenue Service of 6 February 2015 on the method of settlement of excessive tax payments and tax refunds on account of tax arrears, indicating on the contravention of the Tax Ordinance resulting in misinterpretation and incorrect application of the Ordinance’s articles (art. 59 § 1 sub-cl. 4 and art. 76 § 1, art. 76a § 1 in accordance with art. 76b § 1 of the Tax Ordinance) and non-application of the principle of proportionality for charging interest on tax debts (non-application of art. 53 § 1-2 and § 5 sub-cl. 1 of the Tax Ordinance in accordance with art. 273 subpara. 1 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and art. 2 of the Polish Constitution of 2 April 1997).

On 30 December 2015 the Regional Administrative Court issued a favourable verdict for the Company, repealing the appealed resolution of the Internal Revenue Service of 6 February 2015 and sustaining Company’s objections to misinterpretation of the Ordinance’s articles and non-application of the principle of proportionality by the tax authorities. The court verdict is not binding. On 19 February 2015 Head of the Tax Chamber in Łódź filled the cassation complaint to the Supreme Administrative Court. Date of the trial is not appointed yet.

On the basis of the opinion of tax consultants and the Regional Administrative Court’s verdict of 30 December 2015, as at 31 December 2015 no evidence of impairment has been found for receivables from the excessive VAT payment and the receivables were not covered by impairment allowance.