Universal Registration Document 2021

5.1.3.5 Income taxes

Income taxes amounted to €1,400 million at 31 December 2021, corresponding to an effective tax rate of 25.09% (compared to a tax expense of €945 million at 31 December 2020, corresponding to an effective tax rate of 73.10%).

The €455 million increase in the Group’s tax expense in 2021 essentially reflects the €4,292 million increase in net income before taxes, thanks to a good operating and financial performance (unrealised positions) generating an additional tax expense of €1,219 million. The increase also includes the favourable impact of deferred tax asset recognition in the United States and the tax revaluation of assets in Italy, partly mitigated by the unfavourable effect of the forthcoming increase in the UK income tax rate from 19% to 25% from 2023 (creating a larger negative effect than in 2020, when the rate was raised from 17% to 19%).

Regarding the tax revaluation of assets in Italy, special tax measures introduced in response to the Covid-19 pandemic allow Italian companies, by virtue of Article 110 of decree-law 104/2020, to realign the tax value of certain assets and goodwill with their accounting value in return for payment of a 3% tax. The Group’s Italian companies opted to realign the tax value of certain tangible assets and goodwill 31 December 2021.

Finally, the income tax expense in 2020 was strongly affected by the unfavourable Council of State decision issued in December 2020 rejecting the tax-deductibility of certain long-term liabilities of EDF SA, a factor that had no equivalent in 2021.

After elimination of these non-recurring items (principally changes in unrealised gains and losses on the financial asset portfolio, impairment, restatements of the tax value of assets in Italy, the impact of changes in the UK tax rate and the sale of CENG), the effective current tax rate for 2021 is 21.3%, compared to 19.0% in 2020.

5.1.3.6 Net income excluding non-recurring items

The Group’s net income excluding non-recurring items ⁽¹⁾ stood at €4,717 million in 2021, up by €2,748 million from 2020 (see note 19.1, “Net income excluding non-recurring items”, to the 2021 consolidated financial statements).

5.1.3.7 EDF net income

EDF net income amounted to €5,113 million at end-2021, up €4,463 million. Apart from the considerable increase in net income excluding non-recurring items, the change includes the following after-tax items:

• the change in fair value of financial instruments for €1,152 million;
• income of €362 million corresponding to a payment as part of an agreement signed between EDF and AREVA on 29 June 2021;
• additional costs relating to repair work on the main secondary circuit welds at the Flamanville 3 EPR, totalling -€410 million, or an additional charge of -€140 million compare to 2020;
• costs related to the planned closure of Dungeness B, amounting to -€366 million. The latter includes the loss of value of the plant and the depreciation of fuel inventories and spare parts as well as the provisioning of penalties due under the capacity mechanism.

(1) EDF net income excluding non-recurring items, net changes in fair value on energy and commodity derivatives (excluding trading activities), and net changes in the fair value of debt and equity instruments, net of tax. Amount of non-recurring items, net changes in fair value on energy and commodity derivatives (excluding trading activities), and net changes in the fair value of debt and equity instruments, net of tax:

• -€1,480 million of impairment and other non-recurring items in 2021, compared to -€2,068 million in 2020;
• -€149 million of net changes in the fair value of energy and commodity derivatives (excluding trading activities) net of tax in 2021, compared to -€124 million in 2020;
• +€2,025 million of net changes in the fair value of debt and equity instruments in 2021, compared to +€873 million in 2020.