Guidelines

+ NAV-Q05 —

VERNI Real Estate S.A. - and notes

The Balance sheet and Profit and Loss account of VERNI Real Estate S.A. are prepared according to IFRS accounting principles.

The Balance sheet and Profit and Loss account of VERNI Real Estate S.A. are prepared according to IFRS accounting principles.

Accounting principle IFRS

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in other comprehensive income or equity - in which case, the tax is also recognised in other comprehensive income or equity.  

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the statement of financial position in the countries where the Group operates. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

The carrying value of the Group’s investment property is assumed to be realised by sale at the end of use. The capital gains tax rate applied is that which would apply on a direct sale of the property recorded in the consolidated statement of financial position regardless of whether the Group would structure the sale via the disposal of the subsidiary holding the asset, to which a different tax rate may apply. The deferred tax is then calculated based on the respective temporary differences and tax consequences arising from recovery through sale.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Initial recognition exemption

DTL should be recognized for all taxable temporary differences, except when DTL arises from [IAS12.R15]:

1. The initial recognition of goodwill or;
2. The initial recognition of an asset or liability in a transaction which:
   - is not a business combination and
   - at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss)

No deferred tax liability should then be recognised because of the initial recognition exemption rule.

INREV NAV principle on deferred taxes

(Revaluation to fair value of deferred taxes and tax effect of INREV NAV adjustments)

Revaluation to fair value of deferred taxes and tax effect of INREV NAV adjustments Under IFRS, deferred tax assets and liabilities are measured at the nominal statutory tax rate.  

The manner in which the vehicle expects to realise deferred tax (for example, for investment properties through share sales rather than direct property sales) is generally not taken into consideration.   

The adjustment represents the impact on the NAV of the difference between the amount determined in accordance with IFRS and the estimate of deferred tax which takes into account the expected manner of settlement (i.e., when tax structures and the intended method of disposals or settlement of assets and liabilities have been applied to reduce the actual tax liability).  

Disclosures should include an overview of the tax structure including, for instance, details of the property ownership structure, key assumptions and broad parameters used for estimating deferred taxes for each country, the maximum deferred tax amount estimated assuming only asset sales (i.e., without taking into account the intended method of disposal) and the approximate tax rates used.

It is possible that the estimate of the amount of the adjustment required to bring the deferred tax liability related to property disposals to fair value could have a large impact on the INREV NAV. Since tax structures may differ from vehicle to vehicle, significant judgement is required and the mechanics of the calculation methodology for this adjustment may vary from vehicle to vehicle. Other components of the overall deferred tax adjustment require less judgement and are more mechanical in nature.  

This adjustment should include a full assessment of the tax impact on NAV of INREV NAV adjustments.

As with IFRS, deferred tax balances are not discounted to take into account time value of money.

• A fund is structured that it has 6 properties in different countries.
• These are held via 4 SPV's.

[1] Due to initial recognition exemption (FV at acquisition 45,000,000)

Revaluation to fair value of deferred taxes and tax effect of INREV NAV adjustments

[2], [3] Due to the fact that this is a property deal