ESR AR 2019 EN

Notes to the Consolidated Financial Statements 31 December 2019 159 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ESR Annual Report 2019 3. SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES (continued) Judgement (continued) Deferred tax liabilities for withholding tax Pursuant to The PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in The PRC (A lower withholding tax rate may be applied if there is a tax treaty between PRC and the jurisdiction of the foreign investors). As at 31 December 2019 and 2018, no deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings that are subject to withholding taxes of the Group’s subsidiaries and joint ventures established in The PRC. No deferred taxation has been provided for the distributable retained profits of approximately USD11,758,000 as at 31 December 2019 (2018: USD3,766,000), which were derived from The PRC subsidiaries as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Whether the presumption that investment properties stated at fair value are recovered through sale or use in determining deferred tax As of 31 December 2019, deferred tax liabilities amounting to USD178,353,000(2018: USD164,768,000), has been provided for the revaluation of investment properties. The Group determines that these deferred tax liabilities are recognised based on the presumption that the investment properties stated at fair value are recovered through use rather than sale. Further details are given in note 29. Consolidation of structured entities The management makes significant judgment on whether to control and consolidate structured entities. The decision outcome impacts accounting methodologies in use and the financial and operational results of the Group. When assessing control, the Group considers: (1) the level of control of the investor over the investee; (2) variable returns gained through participation of relevant activities of the investee; and (3) the amount of return gained from using its power over the investee. When assessing the level of control over the structured entities, the Group considers the following four aspects: • the degree of participation when establishing the structured entities; • contractual arrangements; • activities that take place only at special occasions or occurring events; and • commitments made to the investee from the Group. When assessing whether there is control over the structured entities, the Group also considers whether the decisions it makes are as a principal or as an agent. Aspects of considerations normally include the decision-making scope over the structured entities, substantive rights of third parties, reward of the Group, and the risk of undertaking variable returns from owning other benefits of the structured entities.