SHINHAN FINANCIAL GROUP CO LTD | CIK:0001263043 |

Filed: 4/30/2018

Entity registrant name: SHINHAN FINANCIAL GROUP CO LTD (CIK: 0001263043)

Generator: Fujitsu

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ifrs-full:DisclosureOfIncomeTaxExplanatory

42.

Income tax expense

(a)

Income tax expense for the years ended December 31, 2015, 2016 and 2017 are as follows:


	2015			2016			2017
Current income tax expense	W	556,558			718,757			749,649
Adjustment for prior periods		(31,101	)		(36,372	)		(23,265	)
Temporary differences		67,928			(480,280	)		46,198
Income tax recognized in other comprehensive income		101,234			143,448			75,551

Income tax expenses	W	694,619			345,553			848,133

(b)

Income tax expense calculated by multiplying net income before tax with the tax rate for the years ended December 31, 2015, 2016 and 2017 are as follows:


	2015			2016			2017
Profit before income taxes	W	3,140,577			3,170,472			3,796,257

Income taxes at statutory tax rates	W	758,345			765,395			917,476
Adjustments:
Non-taxable income		(16,421	)		(30,839	)		(10,614	)
Non-deductible expense		7,862			18,786			12,772
Tax credit		(557	)		(401	)		(195	)
Recognition of deferred tax assets related to expired unused tax losses (see note 42 (c)(*2))		—			(357,307	)		—
Changes in deferred tax due to change in tax rate		—			—			(72,985	)
Other		(42,869	)		(13,709	)		24,944
Refund due to adjustments of prior year tax returns		(11,741	)		(36,372	)		(23,265	)

Income tax expense	W	694,619			345,553			848,133

Effective tax rate	%	22.12			10.90			22.34

The statutory tax rate in Korea was amended in 2017 and will be effective from 2018 as listed below.


Taxable income	Tax Rate
Taxable income	2017			Thereafter
W200 million or below		11.0	%		11.0	%
Below W20 billion		22.0	%		22.0	%
Below W300 billion		24.2	%		24.2	%
W300 billion or above		24.2	%		27.5	%

(c)

Deferred tax expenses by origination and reversal of deferred assets and liabilities and temporary differences for the years ended December 31, 2016 and 2017 are as follows:


	2016
	Beginning balance			Profit or loss			Other comprehensive income/Other			Ending Balance (*1)
Unearned income	W	(138,541	)		(693	)		—			(139,234	)
Account receivable		(13,203	)		1,710			—			(11,493	)
Trading assets		(59,232	)		25,808			—			(33,424	)
Available-for-sale		90,904			(137,598	)		133,591			86,897
Investment in associates		3,021			16,215			876			20,112
Valuation and depreciation of property and equipment		(154,151	)		7,291			—			(146,860	)
Derivative asset (liability)		190,834			(66,004	)		403			125,233
Deposits		15,412			2,750			—			18,162
Accrued expenses		95,278			13,422			—			108,700
Defined benefit obligation		350,047			34,510			(6,157	)		378,400
Plan assets		(308,455	)		(6,426	)		1,173			(313,708	)
Other provisions		203,360			18,389			—			221,749
Allowance for acceptances and guarantees		20,074			(544	)		—			19,530
Allowance related to asset revaluation		(46,988	)		11			—			(46,977	)
Allowance for expensing depreciation		(578	)		57			—			(521	)
Deemed dividend		1,582			(204	)		—			1,378
Accrued contributions		11,261			(2,497	)		—			8,764
Financial instruments designated at fair value through profit of loss		(159,839	)		100,954			—			(58,885	)
Allowances		75,515			19,039			—			94,554
Fictitious dividend		5,101			(268	)		—			4,833
Liability under insurance contracts		10,238			2,866			—			13,104
Other		(43,851	)		(46,909	)		13,562			(77,198	)

		147,789			(18,121	)		143,448			273,116

Expired unused tax losses:
Extinguishment of deposit and insurance liabilities (*2)		—			357,307			—			357,307

	W	147,789			339,186			143,448			630,423

(*1)

Deferred tax assets from overseas subsidiaries were decreased by W1,954 million due to foreign exchange rate movements.

(*2)

The Group did not previously recognized the deferred tax asset relating to the expired unused tax losses as the utilization of the expired unused tax losses had been assessed remote. In 2016, based on the new tax interpretation issued by Korea National Tax Service which allows utilization of expired unused tax losses against extinguishment of deposit and insurance liabilities and the relating recent tax refund, the Group recognized the deferred tax asset after factoring in future taxable profits and the expected future extinguishment of deposit and insurance liabilities.


	2017
	Beginning balance			Profit or loss			Other comprehensive income			Ending Balance (*1)
Unearned income	W	(139,234	)		(62,835	)		—			(202,069	)
Account receivable		(11,493	)		(7,774	)		—			(19,267	)
Trading assets		(33,424	)		44,841			—			11,417
Available-for-sale		86,897			77,198			110,405			274,500
Investment in associates		20,112			1,062			3,748			24,922
Valuation and depreciation of property and equipment		(146,860	)		(16,452	)		—			(163,312	)
Derivative asset (liability)		125,233			(197,253	)		(5,224	)		(77,244	)
Deposits		18,162			9,742			—			27,904
Accrued expenses		108,700			62,610			—			171,310
Defined benefit obligation		378,400			50,410			(20,544	)		408,266
Plan assets		(313,708	)		(100,624	)		2,396			(411,936	)
Other provisions		221,749			(46,132	)		—			175,617
Allowance for acceptances and guarantees		19,530			3,608			—			23,138
Allowance related to asset revaluation		(46,977	)		(5,909	)		—			(52,886	)
Allowance for expensing depreciation		(521	)		(8	)		—			(529	)
Deemed dividend		1,378			3,939			—			5,317
Accrued contributions		8,764			3,140			—			11,904
Financial instruments designated at fair value through profit of loss		(58,885	)		52,397			—			(6,488	)
Allowances		94,554			(70,201	)		—			24,353
Fictitious dividend		4,833			157			—			4,990
Liability under insurance contracts		13,104			5,001			—			18,105
Deficit carried over		—			1,505			—			1,505
Other		(77,198	)		49,675			(15,230	)		(42,753	)

		273,116			(141,903	)		75,551			206,764

Expired unused tax losses:
Extinguishment of deposit and insurance liabilities		357,307			18,500			—			375,807

	W	630,423			(123,403	)		75,551			582,571

(*1)

Deferred tax assets from overseas subsidiaries were decreased by W1,654 million due to foreign exchange rate movements.

(d)

Deferred tax assets and liabilities that were directly charged or credited to equity for the years ended December 31, 2016 and 2017 are as follows:


	January 1, 2016						Changes						December 31, 2016
	OCI (*2)			Tax effect			OCI (*2)			Tax effect			OCI (*2)			Tax effect
Valuation gain (loss) on available-for-sale financial assets	W	1,090,456			(263,744	)		(566,121	)		133,591			524,335			(130,153	)
Foreign currency translation adjustments for foreign operations		(140,265	)		(23,472	)		(1,550	)		13,562			(141,815	)		(9,910	)
Gain (loss) on cash flow hedge		(16,098	)		3,896			(1,665	)		403			(17,763	)		4,299
Equity in other comprehensive income of associates		20,746			(2,177	)		1,813			876			22,559			(1,301	)
The accumulated other comprehensive income in separate account (*1)		11,603			(2,808	)		(5,712	)		1,383			5,891			(1,425	)
Remeasurements of the defined benefit liability		(492,191	)		118,825			21,050			(4,984	)		(471,141	)		113,841

Income tax charged or credited directly to equity	W	474,251			(169,480	)		(552,185	)		144,831			(77,934	)		(24,649	)


	January 1, 2017						Changes						December 31, 2017
	OCI (*2)			Tax effect			OCI (*2)			Tax effect			OCI (*2)			Tax effect
Valuation gain (loss) on available-for-sale financial assets	W	524,335			(130,153	)		(432,461	)		110,405			91,874			(19,748	)
Foreign currency translation adjustments for foreign operations		(141,815	)		(9,910	)		(178,244	)		(15,230	)		(320,059	)		(25,140	)
Gain (loss) on cash flow hedge		(17,763	)		4,299			21,128			(5,224	)		3,365			(925	)
Equity in other comprehensive income of associates		22,559			(1,301	)		(25,300	)		3,748			(2,741	)		2,447
The accumulated other comprehensive income in separate account (*1)		5,891			(1,425	)		(12,529	)		3,251			(6,638	)		1,826
Remeasurements of the defined benefit liability		(471,141	)		113,841			121,451			(18,146	)		(349,690	)		95,695

Income tax charged or credited directly to equity	W	(77,934	)		(24,649	)		(505,955	)		78,804			(583,889	)		54,155

(*1)	Deferred tax effects, which are originated from the accumulated other comprehensive income in separate account, were included in the other assets of separate account’s financial statement.

(*2)	OCI : Other Comprehensive Income

(e)

The amount of deductible temporary differences, unused tax losses, and unused tax credits that are not recognized as deferred tax assets as of December 31, 2016 and 2017 are as follows:


	2016		2017
Tax loss carry forward (*)	W	99,449		99,449

(*)

At the end of reporting date, the expected extinctive date of tax loss carry forward and tax credits carry forward that are not recognized as deferred tax assets are as follows:


	1 year or less		1-2 years		2-3 years		More than 3 years
Tax loss carry forward	W	—		99,449		—		—

(f)

The amount of temporary difference regarding investment in subsidiaries that are not recognized as deferred tax liabilities as of December 31, 2016 and 2017 are as follows:


	2016			2017
Investment in associates	W	(283,161	)		(480,184	)

(g)

The Group set off a deferred tax asset against a deferred tax liability of the same taxable entity if, and only if, they relate to income taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities. Deferred tax assets and liabilities presented on a gross basis prior to any offsetting as of December 31, 2016 and 2017 are as follows:


	2016			2017
Deferred tax assets	W	701,482			659,594
Deferred tax liabilities		(71,059	)		(77,023	)