Danone // 2020 Universal Registration Document

DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 90 4.1 Consolidated financial statements and notes to the consolidated financial statements Note 9. Income tax The benefit granted to the employees is calculated based on the fair value of the shares on the grant date. The fair value is calculated after taking into account the five-year holding period on these shares and the market parameters applicable to employees, in particular the borrowing rate. The corresponding expense is allocated ac- cording to its function to the various headings in the consolidated income statement. Capital increases reserved for employees In 2020, these various capital increases reserved for employees accounted for a total amount of €29,525,315.82. NOTE 9. INCOME TAX Note 9.1. Income tax expense Income before tax and tax expense Year ended December 31 (in € millions, except tax rate in percentage) 2019 2020 Income before tax 2,867 2,488 Current tax (expense) income (753) (799) Deferred tax (expense) income (40) 37 Current and deferred tax (expense) income (793) (762) Effective tax rate 27.7% 30.6% Amount (paid) received during the year (774) (753) Tax rate and tax systems French tax system Danone forms a tax group with most of its French subsidiaries in which it owns, directly or indirectly, more than 95% of the share capital, enabling taxable profits and losses to be offset subject to certain limits and conditions. Other tax systems Similar tax grouping arrangements exist in other countries, in par- ticular in the United States, the Netherlands, the United Kingdom, Germany and Spain. Effective tax rate In 2020, the Group effective tax rate was 30.6%, higher than in 2019. The increase in the rate in 2020 corresponded mainly to the adverse effects in 2020 of the change in the rate in the Netherlands on the measurement of the long-term deferred tax balances. The 2019 rate included the favorable impact of the sale of Earthbound Farm (EDP, United States). As is the case with Danone’s business activity (see breakdown of sales by country in Note 6.2 of the Notes to the consolidated financial statements), Danone’s current and deferred tax expense is also relatively well distributed across several countries, with no single dominant country. Difference between effective tax rate and 32.02% country tax rate in France Year ended December 31 (in percentage) Notes 2019 2020 Country tax rate in France 34.4% 32.0% Differences between French and foreign tax rates (a) (11.9)% (10.8)% Tax on dividends and royalties 2.0% 2.7% Permanent differences 2.9% 1.6% Tax loss carryforwards (b) 9.3 0.6% 1.8% Tax rate adjustments and unallocated taxes (c) 3.2% 4.5% Impact of capital gains and losses on disposal and asset impairment (d) 7.1, 10.3 (2.6)% (0.5)% Other differences (1.1)% (0.7)% Effective tax rate 27.7% 30.6% (a) Various countries, none of which generates a significant difference with the country tax rate in France. (b) In 2020 and 2019, this comprised the impacts of the non-recognition and impairment of the deferred tax assets in certain Latin American countries. (c) In 2020, this correspondedmainly to the adverse effects of the change in the rate in theNetherlands on themeasurement of the long-termdeferred tax balances. (d) In 2019, this corresponded mainly to the disposal of Earthbound Farm (EDP, United States).