Universal Registration Document 2021

9.1 Breakdown of tax expense

The tax expense breaks down as follows:

In 2021, €(1,679) million of the current tax expenses relates to French companies, and €(337) million relates to other subsidiaries (€(604) million and €(143) million respectively in 2020).

9.2 Reconciliation of the theoretical and effective tax expense (tax proof)

The income tax expense amounts to €(1,400) million in 2021, corresponding to an effective tax rate of 25.09% (compared to €(945) million in 2020, corresponding to an effective tax rate of 73.10%).

The €455 million increase in the Group’s tax expense between 2021 and 2020 essentially reflects the €4,292 million increase in net income before tax, generating an additional tax charge of €1,219 million.

The tax expense also reflects the favourable effects of deferred tax asset recognition in the United States and asset revaluations for tax purposes in Italy, which were partly counterbalanced by the forthcoming increase in the UK’s income tax rate from 19% to 25% from 2023 (creating a larger negative impact than in 2020,which the rate was raised from 17% to 19%).

Regarding the tax revaluations 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 at 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 unrealised gains and losses on financial assets, impairment, asset restatements for tax purposes 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.

The main factors explaining the difference between the theoretical tax rate and this effective rate are:

• 2021 :
• ⁽¹⁾ the unfavourable impact of tax rate differences amounting to €359 million, due to the forthcoming increase in the UK’s normative rate from 19% to 25% from 2023;
• ⁽²⁾ the favourable impact of asset restatements for tax purposes in Italy (amounting to €422 million) and deduction of payments made to bearers of perpetual subordinated bonds (amounting to €157 million);
• ⁽³⁾ the effect of non-recognition of deferred tax assets, amounting to €(36) million, including €(309) million of deferred taxes recognised during the year following restatements of the tax value of assets in Italy, partly offset by the favourable effect of deferred tax assets recognised in the United States (€191 million);

• 2020 :
• ⁽¹⁾ the unfavourable impact of tax rate differences amounting to €225 million, mainly explained by an increase in the UK income tax rate from 17% to 19% and the difference between the current tax rate (32.02%) and deferred tax rate in France (28.41% or 25.82%, depending on the timing of reversal of the temporary differences);
• ⁽²⁾ the economic impact of tax litigation, amounting to €(175) million, partly offset by the positive effect of deduction of payments made to bearers of perpetual subordinated bonds amounting to €162 million;
• ⁽³⁾ the effect of non-recognition of deferred tax assets, amounting to €(288) million, including €(361) million of deferred taxes recognised in connection with tax litigation (resulting from the future deductibility of expenses whose deductibility is temporarily being questioned), due to the Group’s prudent policy concerning recognition of deferred taxes beyond a 10-year horizon.