LINE Corp | CIK:0001611820 |

Income Taxes

Current and deferred taxes related to each component of other comprehensive income for the years ended December 31, 2015, 2016 and 2017 are as follows:

Remeasurement of defined benefit plans

Foreign currency translation adjustments

Reclassification adjustments for foreign currency translation adjustments

Proportionate share of other comprehensive income of associates

Net change in fair value of available-for-sale financial assets

Reclassification adjustments for net change in fair value of available-for-sale financial assets

Total

Current tax:

Share issuance costs related to initial public offering

Share issuance costs related to exercise of stock options

Share issuance costs related to Employee Stock Ownership Plan

Deferred tax:

Share issuance costs related to initial public offering

Share issuance costs related to exercise of stock options

Total tax directly (credited) to equity

Deferred Tax Assets and Deferred Tax Liabilities

Deferred tax assets:

Tax losses

Depreciation

Advances received

Deferred revenue

Restoration obligations for operating lease properties

Accrued bonuses

Allowance for doubtful accounts

Other accrued expenses

Accrued enterprise taxes

Available-for-sale financial assets

Share-based compensation

Post-employment benefits

Tax effect on investments in subsidiaries and associates

Other

Total

Deferred tax liabilities:

Available-for-sale financial assets

Prepaid expenses

Intangible assets

Other

Total

Movements in others are attributable mainly to the acquisition of M.T. Burn Corporation and to incremental costs directly attributable to the issuance of common shares, which were recognized as a deduction from equity.

Deferred tax assets:

Tax losses

Depreciation

Advances received

Deferred revenue

Restoration obligations for operating lease properties

Accrued bonuses

Allowance for doubtful accounts

Other accrued expenses

Accrued enterprise taxes

Available-for-sale financial assets

Share-based compensation

Post-employment benefits

Tax effect on investments in subsidiaries and associates

Other

Total

Deferred tax liabilities:

Available-for-sale financial assets

Prepaid expenses

Intangible assets

Other

Total

Movements in others are attributable mainly to the acquisition of NextFloor Corporation.

Total deferred tax assets

Adjustment to offset deferred tax assets and liabilities

Net deferred tax assets

Total deferred tax liabilities

Adjustment to offset deferred tax assets and liabilities

Net deferred tax liabilities

Deductible temporary differences

Unused tax losses

Unused tax credits

Total

Less than one year

Between one year and five years

Five years and more

No expiration date

Total

Less than one year

Between one year and five years

Five years and more

No expiration date

Total

The components of income tax benefits/(expenses) for the years ended December 31, 2015, 2016 and 2017 are as follows:

Current income tax:

Current income tax expenses⁽¹⁾

Deferred tax:

Changes related to origination and reversal of temporary differences⁽²⁾

Changes in the tax rate⁽³⁾

Income tax benefits/(expenses)

Current income tax expenses include previously unrecognized tax benefits from tax loss carryforwards and deductible temporary differences. These benefits were 1,801 million yen, and 489 million yen and 105 million yen for the years ended December 31, 2015, 2016 and 2017, respectively.

These balances represent the deferred tax benefit or expense from the increase and decrease of temporary differences, the reversal of previously written-down deferred tax assets and write-downs of deferred tax assets. The Group had deferred tax benefits of 5,699 million yen, 541 million yen and 105 million yen for the years ended December 31, 2015, 2016 and 2017, respectively, due to the reversal of previously written-down deferred tax assets. The reason for having negative amount of deferred tax for the year ended December 31, 2017 is mainly because of the recognition of deferred tax liabilities due to the transfer of camera application business.

Amendments to the Japanese tax regulations were enacted into law on March 31, 2014, March 31, 2015 and March 29, 2016. As a result of these amendments, the statutory income tax rate has been reduced from 38.0% to approximately 35.6% and 33.5% effective from the year ended December 31, 2015 and 2016, respectively, and the statutory income tax rates are scheduled to be reduced to approximately 31.7% effective from the year ending December 31, 2017 and 31.5% effective from the year ending December 31, 2019. The Group measured deferred tax assets and deferred tax liabilities at the tax rates that are expected to apply to the period when the assets are realized or the liabilities are settled.

The income tax expenses calculated by applying the statutory tax rates to the Group’s profit or loss before tax differ from the actual tax expenses in the Consolidated Statements of Profit or Loss for the years ended December 31, 2015, 2016 and 2017 for the following reasons:

(In millions of yen)

(Loss)/profit before tax from continuing operations

Loss before tax from discontinued operations

Accounting (loss)/profit before tax

Income tax benefits/(expenses) at a statutory rate of 31.7%
(2015: 35.6% and 2016: 33.5%)

Permanent non-deductible items⁽¹⁾

Assessment of the recoverability of deferred tax assets⁽²⁾

Effects of changes in tax rate

Differences in applicable tax rate of subsidiaries⁽³⁾

Tax effect on investment in subsidiaries and associates⁽⁴⁾

Gain on fair value measurement relating to the deconsolidation⁽⁵⁾

Share of loss of associates and joint ventures⁽⁶⁾

Others

Income tax (expenses)/benefits at an effective tax rate of 54.7%
(2015: 33.7% and 2016: 53.5%)

Income tax benefits/(expenses) reported in the statements of profit or loss

Income tax benefits attributable to discontinued operations

Permanent non-deductible items were mainly related to non-deductible share-based payment expenses, including share-based payment expenses incurred in connection with stock options granted to employees and directors defined as non-resident of Japan.

For the year ended December 31, 2015, the amount was due to recognizing previously unrecognized deferred tax assets of 3,092 million yen and 2,434 million yen for tax loss carryforwards and deductible temporary differences, respectively, primarily for one of the Group’s Korean subsidiaries on a stand-alone basis. Such impact was partially offset by unrecognized deferred tax assets of 2,368 million yen and 944 million yen in connection with the pre-tax losses recorded by MixRadio Limited and the Group’s other subsidiaries, respectively, on a stand-alone basis.

For the year ended December 31, 2016, the amount mainly due to pre-tax profits recorded by the Group’s Korean subsidiaries, which was partially offset by the pre-tax loss recorded by MixRadio Limited. For the year ended December 31, 2017, the difference is mainly due to pre-tax profits recorded by the Group’s Korean subsidiaries.

This tax effect is mainly due to the deductible temporary difference arising from the investment in MixRadio Limited, which incurred losses during the year. This tax effect offsets MixRadio Limited’s stand-alone tax impacts described in (2) and (3) above.

The amount was related to the re-measurement to fair value of the investment in LINE BIZ Plus Ltd retained by the Group. Refer to Note 20 Supplemental Cash Flow Information for further details.

The amount was mainly related to pre-tax losses recorded by the Group’s associates on a standalone basis for which no deferred tax assets were recognized as the related tax benefits could not be recognized.