24. Administrative expenses

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PKO Annual
Report Online
2020

Accounting policies

Employee benefits Employee benefits comprise wages and salaries and social insurance (including provisions for retirement and disability benefits, which are discussed in detail in the Note “Provisions”), as well as costs of the employee pension scheme constituting a defined contribution scheme and the programme of variable remuneration components for persons occupying managerial positions, a portion of which is recorded as a liability in respect of share-based payments settled in cash, in accordance with IFRS 2 Share-based payments (the programme of variable remuneration components is discussed in detail in the “Remuneration of the PKO Bank Polski S.A. key management”).

Moreover, as part of wages and salaries, the Group creates a provision for future liabilities in respect of compensation and severance bonuses paid out to employees with whom the employment relationship is terminated for reasons not related to the employees, and accruals related to costs attributable to the current period, which will be incurred in the next period, including bonuses and holiday pay, taking account of all unused holiday.

Overheads Overheads include the costs of maintaining fixed assets, IT and telecommunications services costs, costs of administration, promotion and advertising, property protection and training.

Lease payments under short-term and low-value leases are recognized in the income statement as an expense on a straight-line basis over the lease term.

Contributions and payments to the BGF According to IFRIC 21 “Levies”, fees paid by the Group to the Bank Guarantee Fund are recognized in profit or loss upon the occurrence of the obligating event.

The Group makes contributions to the banks’ guarantee fund (quarterly) and the banks’ compulsory resolution fund (annually). Contributions to the guarantee fund and the compulsory resolution fund are not tax-deductible.

Fees to PFSA In accordance with IFRIC 21 “Levies”, fees paid to the Polish Financial Supervision Authority are recognized in profit or loss upon the occurrence of the obligating event.

Both fees (to cover the cost of banking supervision and to cover the costs of supervision over the capital market) are paid once a year. Fees paid to the Polish Financial Supervision Authority are tax deductible.

Flat-rate income tax The Act of 23 October 2018 on amendments to, among other things, Acts on income taxes, introduced a possibility of an alternative to taxation with WHT, namely a 3% tax on certain interest paid to non-residents. Therefore, on 29 March 2019, the Bank filed a notification on the election of the 3% taxation option with the tax office in respect of:
  • interest on loans which is paid by the Bank to PKO Finance AB with its registered office in Sweden (the election of the taxation, compliant with the act, relates to the years 2014- 2022) and
  • interest on Eurobonds issued by the Bank before 1 January 2019.
Other taxes and fees Property tax, payments made to the State Fund for Rehabilitation of Disabled Persons, municipal and administration fees.

Financial information

ADMINISTRATIVE EXPENSES 2020 2019
Employee benefits (2 973) (3 215)
Overheads, of which: (1 253) (1 347)
rent (96) (78)
IT (349) (321)
Depreciation and amortization (979) (922)
property, plant and equipment, of which: (541) (531)
right-of-use assets (229) (206)
IT (100) (124)
investment properties (1) (2)
intangible assets, of which: (438) (391)
IT (409) (358)
Net regulatory charges (778) (537)
Total (5 983) (6 021)

EMPLOYEE BENEFITS 2020 2019
Wages and salaries, including: (2 494) (2 693)

costs of contributions to the employee pension plan

(66) (66)

restructuring costs

(16) (32)
Social insurance, of which: (409) (432)

contributions for disability and retirement benefits

(355) (363)
Other employee benefits (70) (90)
Total (2 973) (3 215)

NET REGULATORY CHARGES 2020 2019
Contribution and payments to the Bank Guarantee Fund (BGF), including: (668) (509)

to the Resolution Fund

(318) (348)

to the Banks’ Guarantee Fund

(350) (161)
Fees to PFSA (36) (41)
Flat-rate income tax, of which: (7) 81

withheld tax (20%)

138

flat-rate income tax (3%)

(7) (57)
Other taxes and fees (67) (68)
Total (778) (537)

Due to the fact that the Bank collected 20% withholding tax on interest paid to PKO Finance AB for 2017–2018, on 12 February 2019, it filed a request to determine overpayment of tax together with corrected tax returns. The request was accepted without issuing a decision on this matter. The Bank was informed by the Tax Office that its application had been approved and requested for the instruction on the overpayment settlement approach.

The correction of the 20% withholding tax by PLN 138 million in plus and recognizing the 3% tax on interest assessed for 2014-2018 (PLN 50 million) are one-off events. The 3% tax option in respect of tax interest on loans paid to PKO Finance AB results from Article 21 of the Act of 23 October 2018 on amendments to the Act on personal income tax, the Act on corporate income tax, the Act on tax code and other acts (Journal of Laws of 2018, item 2193 with further amendments). The Group paid the tax in the mandatory statutory period, i.e. from 31 January 2019 to 31 July 2019.

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