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Tax | 12 Months Ended
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Dec. 31, 2019
Text block [abstract] |
Tax | 8. Tax Tax on profit
|  | 2019 $m |  |  | 2018 Restated $m |  |  | 2017 Restated $m |
Income tax |  |  |  |  |  |  |  |  |  |  |  |
UK corporation tax at 19.00% (2018: 19.00%, 2017: 19.25%): |  |  |  |  |  |  |  |  |  |  |  |
Current period |  |  | 5 |  |  |  | 10 |  |  |  | 10 |
Adjustments in respect of prior periods |  |  | 13 |  |  |  | 4 |  |  |  | (2 | )
|  |  | 18 |  |  |  | 14 |  |  |  | 8 |
Foreign tax: |  |  |  |  |  |  |  |  |  |  |  |
Current period |  |  | 154 |  |  |  | 95 |  |  |  | 210 |
Benefit of tax reliefs on which no deferred tax previously recognised |  |  | (2 | ) |  |  | (1 | ) |  |  | (13 | )
Adjustments in respect of prior periods |  |  | (11 | ) |  |  | (13 | ) |  |  | 2 |
|  |  | 141 |  |  |  | 81 |  |  |  | 199 |
Total current tax |  |  | 159 |  |  |  | 95 |  |  |  | 207 |
Deferred tax: |  |  |  |  |  |  |  |  |  |  |  |
Origination and reversal of temporary differences |  |  | 11 |  |  |  | 39 |  |  |  | (8 | )
Changes in tax rates and tax laws a |  |  | 2 |  |  |  | 1 |  |  |  | (56 | )
Adjustments to estimated recoverable deferred tax assets b |  |  | (2 | ) |  |  | (2 | ) |  |  | (9 | )
Adjustments in respect of prior periods |  |  | (14 | ) |  |  | (1 | ) |  |  | (16 | )
Total deferred tax |  |  | (3 | ) |  |  | 37 |  |  |  | (89 | )
Total income tax charge for the year |  |  | 156 |  |  |  | 132 |  |  |  | 118 |
Further analysed as tax relating to: |  |  |  |  |  |  |  |  |  |  |  |
Profit before exceptional items c |  |  | 176 |  |  |  | 159 |  |  |  | 203 |
Exceptional items: |  |  |  |  |  |  |  |  |  |  |  |
Tax on exceptional items (note 6) |  |  | (20 | ) |  |  | (22 | ) |  |  | 2 |
Exceptional tax (note 6) |  |  | — |  |  |  | (5 | ) |  |  | (87 | )
|  |  | 156 |  |  |  | 132 |  |  |  | 118 |
a | In 2017, predominantly reflects a change in US tax rates following significant US tax reforms.
b | Represents a reassessment of the recovery of recognised and off-balance sheet deferred tax assets in line with the Group’s profit forecasts.
c | Includes $113m (2018: $93m, 2017: $157m) in respect of US taxes .
All items above relate to continuing operations.
|  | Total a |  |  | Before exceptional items and System Fund b |
|  | 2019 % |  |  | 2018 Restated % |  |  | 2017 Restated % |  |  | 2019 % |  |  | 2018 Restated % |  |  | 2017 Restated % |
Reconciliation of tax charge |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
UK corporation tax at standard rate |  |  | 19.0 |  |  |  | 19.0 |  |  |  | 19.3 |  |  |  | 19.0 |  |  |  | 19.0 |  |  |  | 19.3 |
Tax credits |  |  | (0.8 | ) |  |  | (0.5 | ) |  |  | (0.5 | ) |  |  | (0.6 | ) |  |  | (0.3 | ) |  |  | (0.5 | )
System Fund c |  |  | 1.1 |  |  |  | 5.0 |  |  |  | 0.9 |  |  |  | (0.5 | ) |  |  | (0.5 | ) |  |  | (0.4 | )
Impairment charges |  |  | 1.7 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other permanent differences |  |  | 1.3 |  |  |  | 0.6 |  |  |  | 0.8 |  |  |  | 0.8 |  |  |  | 0.3 |  |  |  | 0.6 |
Non-recoverable foreign taxes d |  |  | 3.2 |  |  |  | 0.7 |  |  |  | 0.3 |  |  |  | 2.4 |  |  |  | 0.5 |  |  |  | 0.3 |
Net effect of different rates of tax in overseas businesses e |  |  | 6.7 |  |  |  | 4.6 |  |  |  | 14.6 |  |  |  | 5.5 |  |  |  | 3.7 |  |  |  | 13.9 |
Effects of changes in tax rates resulting from significant US tax reform |  |  | — |  |  |  | — |  |  |  | (8.7 | ) |  |  | — |  |  |  | — |  |  |  | — |
Release of provision for taxation on unremitted earnings following significant US tax reform |  |  | — |  |  |  | — |  |  |  | (7.8 | ) |  |  | — |  |  |  | — |  |  |  | — |
Transition tax liability arising from significant US tax reform |  |  | — |  |  |  | — |  |  |  | 4.8 |  |  |  | — |  |  |  | — |  |  |  | — |
Effect of other changes in tax rates and tax laws |  |  | (0.4 | ) |  |  | 0.3 |  |  |  | 0.3 |  |  |  | (0.3 | ) |  |  | 0.2 |  |  |  | 0.3 |
Benefit of tax reliefs on which no deferred tax previously recognised |  |  | (0.4 | ) |  |  | (0.4 | ) |  |  | (1.9 | ) |  |  | (0.3 | ) |  |  | (0.3 | ) |  |  | (1.8 | )
Effect of adjustments to estimated recoverable deferred tax assets |  |  | (0.4 | ) |  |  | 0.1 |  |  |  | (1.4 | ) |  |  | (0.3 | ) |  |  | 0.1 |  |  |  | (1.3 | )
Adjustment to tax charge in respect of prior periods |  |  | (2.2 | ) |  |  | (2.0 | ) |  |  | (2.6 | ) |  |  | (1.9 | ) |  |  | (1.0 | ) |  |  | (1.1 | )
|  |  | 28.8 |  |  |  | 27.4 |  |  |  | 18.1 |  |  |  | 23.8 |  |  |  | 21.7 |  |  |  | 29.3 |
a | Calculated in relation to total profits including exceptional items and System Fun d .
b | Calculated in relation to profits excluding exceptional items and System Fund earnings.
c | The System Fund is , in general, not subject to taxation.
d | In 2018, IHG recognised a benefit in respect of foreign tax credits in the US that were carried back against 2017 tax. In 2019, this carry back benefit is not available which has led to an increase in irrecoverable tax by 1.8 percentage points on the underlying rate before exceptional items and System Fund. These credits are disclosed within unrecognised deferred tax.
e | Before exceptional items and System Fund includes 4.9 p ercentage p oints (2018: 4.2 percentage points , 2017: 13.3 percentage points) driven by the relatively high US federal tax rate.
A reconciliation between total tax rate and tax rate before exceptional items and System Fund is shown below:
|  | 2019 |  |  | 2018 Restated |  |  | 2017 Restated |
|  | Profit before tax $m |  |  | Tax $m |  |  | Rate % |  |  | Profit before tax $m |  |  | Tax $m |  |  | Rate % |  |  | Profit before tax $m |  |  | Tax $m |  |  | Rate % |
Group income statement |  |  | 542 |  |  |  | 156 |  |  |  | 28.8 |  |  |  | 482 |  |  |  | 132 |  |  |  | 27.4 |  |  |  | 653 |  |  |  | 118 |  |  |  | 18.1 |
Adjust for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exceptional items (note 6) |  |  | 148 |  |  |  | 20 |  |  |  |  |  |  |  | 104 |  |  |  | 27 |  |  |  |  |  |  |  | (4 | ) |  |  | 85 |  |  |  |  |
System Fund |  |  | 49 |  |  |  | — |  |  |  |  |  |  |  | 146 |  |  |  | — |  |  |  |  |  |  |  | 34 |  |  |  | — |  |  |  |  |
Other |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | (3 | ) |  |  |  |
|  |  | 739 |  |  |  | 176 |  |  |  | 23.8 |  |  |  | 732 |  |  |  | 159 |  |  |  | 21.7 |  |  |  | 683 |  |  |  | 200 |  |  |  | 29.3 |
LOGO |  | Information concerning Non-GAAP measures can be found in the Strategic Report on page s 55 to 59 .
Tax paid Total net tax paid during the year of $141m (2018: $68m, 2017: $172m) comprises $141m (2018: $66m, 2017: $147m) paid in respect of operating activities and $nil (2018: $2m, 2017: $25m) paid in respect of investing activities. A reconciliation of tax paid to the total tax charge in the Group income statement is as follows:
|  | 2019 $m |  |  | 2018 $m |  |  | 2017 $m |
Current tax charge in the Group income statement |  |  | (159 | ) |  |  | (95 | ) |  |  | (207 | )
Current tax credit in the Group statement of comprehensive income |  |  | 2 |  |  |  | 1 |  |  |  | — |
Current tax credit taken directly to equity |  |  | 4 |  |  |  | 8 |  |  |  | 12 |
Total current tax charge |  |  | (153 | ) |  |  | (86 | ) |  |  | (195 | )
Movements to tax contingencies within the Group income statement a |  |  | 3 |  |  |  | (4 | ) |  |  | (3 | )
Timing differences of cash tax paid and foreign exchange differences |  |  | 9 |  |  |  | 22 |  |  |  | 26 |
Tax paid per cash flow |  |  | (141 | ) |  |  | (68 | ) |  |  | (172 | )
a | Tax contingency movements are included within the current tax charge but do not impact cash tax paid in the year.
Current tax Within current tax payable is $33m (2018: $29m) in respect of uncertain tax positions. The calculation of the Group’s total tax charge involves consideration of applicable tax laws and regulations in many jurisdictions throughout the world. From time to time, the Group is subject to tax audits and uncertainties in these jurisdictions. The issues involved can be complex and disputes may take a number of years to resolve. Where the interpretation of local tax law is not clear, management relies on judgement and accounting estimates to ensure all uncertain tax positions are adequately provided for in the Group Financial Statements. This may involve consideration of some or all of the following factors:
• |  | s trength of technical argument, impact of case law and clarity of legislation;
• |  | p rofessional advice;
• |  | e xperience of interactions, and precedents set, with the particular taxing authority; and
• |  | a greements previously reached in other jurisdictions on comparable issues.
The largest single contingency item within the current tax payable balance does not exceed $9m (2018: $8m).
Deferred tax
|  | Property, plant, equipment and software $m |  |  | Other intangible assets and contract assets Restated $m |  |  | Application fees and contract costs $m |  |  | Deferred gains on loan notes $m |  |  | Deferred gains on investments $m |  |  | Losses $m |  |  | Employee benefits $m |  |  | Undistributed earnings of subsidiaries $m |  |  | Other short-term temporary differences a Restated $m |  |  | Total Restated $m |
At 1 January 2018 |  |  | (98 | ) |  |  | (2 | ) |  |  | 25 |  |  |  | (34 | ) |  |  | (54 | ) |  |  | 40 |  |  |  | 20 |  |  |  | — |  |  |  | 86 |  |  |  | (17 | )
Group income statement |  |  | (26 | ) |  |  | (8 | ) |  |  | 4 |  |  |  | (1 | ) |  |  | (2 | ) |  |  | (4 | ) |  |  | — |  |  |  | (2 | ) |  |  | 2 |  |  |  | (37 | )
Assets of businesses acquired |  |  | 4 |  |  |  | (11 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10 |  |  |  | 3 |
Group statement of comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2 | ) |  |  | — |  |  |  | (2 | ) |  |  | (4 | )
Group statement of changes in equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5 | ) |  |  | (5 | )
Exchange and other adjustments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1 | )
At 31 December 2018 |  |  | (120 | ) |  |  | (21 | ) |  |  | 29 |  |  |  | (35 | ) |  |  | (56 | ) |  |  | 35 |  |  |  | 18 |  |  |  | (2 | ) |  |  | 91 |  |  |  | (61 | )
Group income statement |  |  | — |  |  |  | 1 |  |  |  | (2 | ) |  |  | 1 |  |  |  | (2 | ) |  |  | (9 | ) |  |  | — |  |  |  | 2 |  |  |  | 12 |  |  |  | 3 |
Assets of businesses acquired |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2 |  |  |  | 2 |
Group statement of comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | (1 | ) |  |  | — |
Exchange and other adjustments |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 4 |
At 31 December 2019 |  |  | (119 | ) |  |  | (19 | ) |  |  | 27 |  |  |  | (34 | ) |  |  | (58 | ) |  |  | 27 |  |  |  | 20 |  |  |  | — |  |  |  | 104 |  |  |  | (52 | )
a | Primarily relates to provisions, accruals, share-based payments, right-of-use assets, lease liabilities and contingent purchase consideration.
Deferred gains on investments represent tax which would crystallise upon a sale of a related joint venture, associate or other equity investment. Deferred gains on loan notes represent tax which is expected to fall due for payment in 2025 (2018: 2025). The deferred tax asset recognised in respect of losses of $27m (2018: $35m) is wholly in respect of revenue losses. A deferred tax asset of $4 m (2018: $nil) is recognised in a legal entity which suffered a tax loss in the current or preceding period. This deferred tax asset has been recognised on the basis of the future expected performance of the entity in question. Offset against deferred tax assets is $nil (2018: $nil) in respect of uncertain tax positions. The closing balance is further analysed by key territory as follows:
|  | Property, plant, equipment and software $m |  |  | Other intangible assets and contract assets $m |  |  | Application fees and contract costs $m |  |  | Deferred gains on loan notes $m |  |  | Deferred gains on investments $m |  |  | Losses $m |  |  | Employee benefits $m |  |  | Undistributed earnings of subsidiaries $m |  |  | Other short-term temporary differences $m |  |  | Total $m |
UK |  |  | 6 |  |  |  | 5 |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | 21 |  |  |  | 4 |  |  |  | — |  |  |  | 20 |  |  |  | 55 |
US |  |  | (125 | ) |  |  | (18 | ) |  |  | 33 |  |  |  | (34 | ) |  |  | (58 | ) |  |  | 1 |  |  |  | 16 |  |  |  | — |  |  |  | 74 |  |  |  | (111 | )
Other |  |  | — |  |  |  | (6 | ) |  |  | (5 | ) |  |  | — |  |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | — |  |  |  | 10 |  |  |  | 4 |
|  |  | (119 | ) |  |  | (19 | ) |  |  | 27 |  |  |  | (34 | ) |  |  | (58 | ) |  |  | 27 |  |  |  | 20 |  |  |  | — |  |  |  | 104 |  |  |  | (52 | )
The analysis of the deferred tax balance after considering the offset of assets and liabilities within entities where there is a legal right to do so is as follows:
|  | 2019 $m |  |  | 2018 Restated $m |
Analysed as: |  |  |  |  |  |  |  |
Deferred tax assets |  |  | 66 |  |  |  | 63 |
Deferred tax liabilities |  |  | (118 | ) |  |  | (124 | )
|  |  | (52 | ) |  |  | (61 | )
The Group does not recognise deferred tax assets if it cannot anticipate being able to offset them against future profits or gains. The total unrecognised deferred tax position is as follows:
|  | Gross |  |  | Unrecognised deferred tax |
|  | 2019 $m |  |  | 2018 Restated $m |  |  | 2019 $m |  |  | 2018 Restated $m |
Revenue losses |  |  | 413 |  |  |  | 448 |  |  |  | 65 |  |  |  | 67 |
Capital losses |  |  | 541 |  |  |  | 516 |  |  |  | 95 |  |  |  | 90 |
Total losses |  |  | 954 |  |  |  | 964 |  |  |  | 160 |  |  |  | 157 |
Foreign tax credits |  |  | 13 |  |  |  | — |  |  |  | 13 |  |  |  | — |
Leases |  |  | 25 |  |  |  | 25 |  |  |  | 7 |  |  |  | 7 |
Other a |  |  | 2 |  |  |  | 24 |  |  |  | 1 |  |  |  | 7 |
|  |  | 994 |  |  |  | 1,013 |  |  |  | 181 |  |  |  | 171 |
a | Primarily relates to costs incurred in prior years for which relief has not been obtained.
There is no expiry date to any of the above unrecognised assets other than for the losses and foreign tax credits as shown in the table below:
|  | Gross |  |  | Unrecognised deferred tax |
|  | 2019 $m |  |  | 2018 $m |  |  | 2019 $m |  |  | 2018 $m |
Expiry date: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2020 |  |  | 2 |  |  |  | — |  |  |  | — |  |  |  | — |
2021 |  |  | 31 |  |  |  | 28 |  |  |  | 6 |  |  |  | 6 |
2022 |  |  | 10 |  |  |  | 10 |  |  |  | 2 |  |  |  | 2 |
2023 |  |  | 2 |  |  |  | 1 |  |  |  | — |  |  |  | — |
2024 |  |  | 4 |  |  |  | 4 |  |  |  | 1 |  |  |  | — |
2025 |  |  | 91 |  |  |  | 92 |  |  |  | 20 |  |  |  | 21 |
After 2025 |  |  | 24 |  |  |  | 46 |  |  |  | 17 |  |  |  | 3 |
No deferred tax liability has been recognised in respect of $0.9bn (2018: $0.8bn) of taxable temporary differences relating to subsidiaries (comprising undistributed earnings and net inherent gains) because the Group is in a position to control the timing of the reversal of these temporary differences and it is probable that such differences will not reverse in the foreseeable future. Tax risks, policies and governance
LOGO |  | Information concerning the Group’s tax governance can be found in the Taxation section of the Strategic Report on page 73.
Factors that may affect the future tax charge Many factors will affect the Group’s future tax rate, the key ones being future legislative developments, future profitability of underlying subsidiaries and tax uncertainties. There are many potential future changes to worldwide taxation systems as a result of the potential adoption by individual territories of recommendations of the OECD’s Base Erosion and Profit Shifting project, and other similar initiatives being driven by the OECD, governments and tax authorities. The Group continues to monitor activity in this area. At the current time, the exact detail of the United Kingdom’s exit from the European Union remains unknown. Based upon the Group’s profile and areas that have been publicly discussed, the Group does not anticipate the exit to cause a material impact on its future underlying effective tax rate.

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