(15) Income tax
Accounting and measurement policies
Current income taxes
Current income taxes for the reporting period and, where applicable, for prior periods are calculated in the amounts that the tax authorities are expected to demand or reimburse. The calculation is based on the company-specific tax rate applicable in the relevant tax year.
Uncertain income tax claims and liabilities
Assessments relating to specific matters are made to calculate uncertain income tax claims and liabilities. Uncertain income tax matters are recognized depending on the likelihood that the responsible tax authorities will accept the respective income tax treatment. If recognition by the tax authorities is considered unlikely, the respective uncertain tax asset or uncertain tax liability is measured at the most likely amount. Uncertain income tax liabilities are disclosed within income tax liabilities. Expected income tax-related penalties and interest that do not fall within the scope of IAS 12 are treated as provisions in line with the relevant provisions of IAS 37.
Deferred taxes
Deferred tax assets resulting from deductible temporary differences that exceed deferred tax liabilities relating to the same taxation authority and the same taxable entity are recognized if it is considered likely that taxable profit will be available in the future to apply such tax assets. This corresponds to the procedure for recognizing deferred tax assets on unused tax credits and tax loss and interest carryforwards.
The recognition of deferred tax assets requires an estimate of the probability of future use. The influencing factors considered as part of this assessment include the following:
- temporary differences relating to the same taxation authority and the same taxable entity that will be subject to taxation in the future
- results history,
- results planning, and
- existing tax planning of the respective Group company.
Deferred tax liabilities are recognized for projected dividend payments of subsidiaries. If no dividend payments are projected in the foreseeable future, no deferred tax liability is recognized for the difference between proportional equity and the investment value determined for tax purposes.
Significant discretionary decisions and sources of estimation uncertainty
Income tax
The calculation of the reported assets and liabilities from current and deferred income taxes requires extensive discretionary judgments, assumptions, and estimates.
When assessing income tax claims and liabilities, the interpretation of tax provisions may be subject to particular uncertainty. The possibility that the relevant tax authorities will take a different view concerning the correct application and interpretation of tax standards cannot be ruled out. Changes to the assumptions underlying the correct interpretation of tax standards, for example as a result of changes in legislation, affect the accounting treatment of uncertain income tax assets and liabilities in fiscal 2020.
Regarding deferred tax items, there were degrees of uncertainty concerning the date on which an asset is realized or a liability settled and concerning the tax rate applicable on this date. This applies in particular to deferred taxes recognized in the course of acquisitions. Assessing the recoverability, particularly of tax credits and tax loss and interest carryforwards, requires assumptions and estimates concerning the future taxable income of the respective Group company. Furthermore, the extent to which a subsidiary’s planned dividend distribution is probable in the foreseeable future is discretionary.
Income taxes in the consolidated income statement were broken down as follows:
€ million |
|
2020 |
|
2019 |
|---|---|---|---|---|
Current income taxes in the period |
|
-959 |
|
-834 |
Income taxes for previous periods |
|
-11 |
|
-59 |
Deferred taxes in the period |
|
333 |
|
453 |
thereof: from temporary differences |
|
334 |
|
466 |
thereof: from tax losses carried forward |
|
-7 |
|
-6 |
thereof: from changes in tax rates |
|
6 |
|
-7 |
Income taxes |
|
-637 |
|
-440 |
Tax reconciliation
The following table presents the reconciliation from the theoretical income tax expense to the income tax expense according to the consolidated income statement. The theoretical income tax expense is determined by applying the statutory tax rate of a corporation headquartered in Darmstadt of 31.7% (2019: 31.7%).
€ million |
|
2020 |
|
2019 |
|---|---|---|---|---|
Profit before income tax |
|
2,630 |
|
1,735 |
|
|
|
|
|
Tax rate |
|
31.7% |
|
31.7% |
Theoretical income tax expense |
|
-834 |
|
-550 |
Tax rate differences |
|
307 |
|
192 |
Tax effect of companies with a negative contribution to consolidated profit |
|
-31 |
|
-26 |
Income tax for previous periods |
|
-11 |
|
-59 |
Tax credits |
|
-32 |
|
-17 |
Tax effect on tax loss carryforwards |
|
5 |
|
16 |
Tax effect of non-deductible expenses/tax-free income/other tax effects |
|
-41 |
|
4 |
Income tax expense according to consolidated income statement |
|
-637 |
|
-440 |
|
|
|
|
|
Tax ratio according to consolidated income statement |
|
24.2% |
|
25.4% |
Income taxes consisted of corporation and trade taxes for the companies domiciled in Germany as well as comparable income taxes for foreign companies. Income taxes relating to other periods recognized in fiscal 2020 resulted mainly from completed tax audits and mutual agreement procedures as well as from additions to liabilities for risks from tax audits.
Deferred taxes according to consolidated income statement
The reconciliation between deferred taxes on the consolidated balance sheet and deferred taxes on the consolidated income statement is presented in the following table:
€ million |
|
2020 |
|
2019 |
||||
|---|---|---|---|---|---|---|---|---|
Change in deferred tax assets (consolidated balance sheet) |
|
121 |
|
330 |
||||
Change in deferred tax liabilities (consolidated balance sheet)1 |
|
384 |
|
-537 |
||||
Deferred taxes credited/debited to equity |
|
-116 |
|
-67 |
||||
Changes in scope of consolidation/currency translation/other changes1 |
|
-58 |
|
727 |
||||
Deferred taxes (consolidated income statement) |
|
333 |
|
453 |
||||
|
||||||||
The item “Changes in scope of consolidation/currency translation/other changes” primarily comprised exchange rate effects between the euro and the U.S. dollar. In the previous year, it mainly included deferred taxes recognized in connection with the acquisition of Versum Materials, Inc., United States.
Changes in tax loss carryforwards
Tax loss carryforwards were structured as follows:
|
|
Dec. 31, 2020 |
|
Dec. 31, 2019 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
Germany |
|
Outside Germany |
|
Total |
|
Germany |
|
Outside Germany |
|
Total |
Tax loss carryforwards |
|
94 |
|
1,110 |
|
1,204 |
|
57 |
|
1,168 |
|
1,225 |
Tax loss carryforwards for which a deferred tax asset is recognized |
|
4 |
|
161 |
|
165 |
|
– |
|
198 |
|
198 |
Tax loss carryforwards for which no deferred tax asset is recognized |
|
90 |
|
949 |
|
1,039 |
|
57 |
|
970 |
|
1,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential deferred tax assets for tax loss carryforwards |
|
27 |
|
257 |
|
284 |
|
17 |
|
270 |
|
287 |
Recognized deferred tax assets on tax loss carryforwards |
|
– |
|
20 |
|
20 |
|
– |
|
27 |
|
27 |
Not recognized deferred tax assets on tax loss carryforwards |
|
27 |
|
237 |
|
264 |
|
17 |
|
243 |
|
260 |
The majority of the tax loss carryforwards either has no expiry date or can be utilized for up to 20 years. In 2020, the income tax expense was reduced by € 5 million (December 31, 2019: € 16 million) due to the utilization of tax loss carryforwards from prior years for which no deferred tax asset had been recognized in previous periods.
Unused tax credits amounted to € 31 million as of December 31, 2020 (December 31, 2019: € 42 million). No deferred tax assets were recognized for € 17 million of these unused tax credits (December 31, 2019: € 16 million).
Deferred taxes according to consolidated balance sheet
Deferred tax assets and liabilities corresponded to the following balance sheet items:
|
|
Dec. 31, 2020 |
|
Dec. 31, 2019 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
||||
Intangible assets1 |
|
114 |
|
1,600 |
|
141 |
|
1,965 |
||||
Property, plant and equipment1 |
|
27 |
|
101 |
|
25 |
|
119 |
||||
Current and non-current financial assets |
|
– |
|
26 |
|
6 |
|
1 |
||||
Inventories |
|
679 |
|
13 |
|
657 |
|
17 |
||||
Current and non-current receivables/Other assets |
|
19 |
|
6 |
|
29 |
|
6 |
||||
Provisions for pensions and other post-employment benefits |
|
697 |
|
8 |
|
546 |
|
6 |
||||
Current and non-current other provisions |
|
251 |
|
27 |
|
212 |
|
24 |
||||
Current and non-current liabilities |
|
94 |
|
22 |
|
93 |
|
6 |
||||
Tax loss carryforwards |
|
20 |
|
– |
|
27 |
|
– |
||||
Tax refund claims/Other |
|
51 |
|
48 |
|
73 |
|
71 |
||||
Deferred taxes (before offsetting)1 |
|
1,951 |
|
1,849 |
|
1,811 |
|
2,215 |
||||
Offset deferred tax assets and liabilities |
|
-408 |
|
-408 |
|
-390 |
|
-390 |
||||
Deferred taxes (consolidated balance sheet)1 |
|
1,543 |
|
1,441 |
|
1,421 |
|
1,825 |
||||
|
||||||||||||
The changes in deferred tax assets and liabilities are primarily attributable to items recognized in profit or loss. Items not recognized in profit or loss related to deferred tax effects resulting from items recognized through other comprehensive income such as the remeasurement of the net defined benefit obligation and other benefit commitments, changes in the fair value of financial assets and derivatives held for hedging purposes, and currency translation effects. In fiscal 2020, the latter were attributable in particular to deferred tax liabilities recognized for temporary differences on intangible assets. Deferred tax assets and liabilities recognized or derecognized in connection with changes in the scope of consolidation in fiscal 2020 primarily related to deferred tax assets for temporary differences on provisions for pensions and other post-employment benefits.
The reduction in deferred tax liabilities is primarily due to the reversal of deferred tax liabilities in connection with the scheduled amortization of intangible assets identified and recognized in the course of purchase price allocations made in connection with past acquisitions.
An excess of deferred tax assets in the amount of € 34 million (December 31, 2019: € 27 million) was recognized for Group companies that reported losses in the last two years, as these are expected to be realizable on the basis of the positive earnings forecasts.
Deferred tax liabilities from outside basis differences for planned dividend payouts were recorded in the amount of € 46 million (December 31, 2019: € 51 million). Temporary differences relating to the retained earnings of subsidiaries, for which no deferred taxes are recognized, amounted to € 12,609 million as of December 31, 2020 (December 31, 2019: € 10,238 million).
Income tax receivables and income tax liabilities
Income tax receivables amounted to € 530 million (December 31, 2019: € 600 million). Of this figure, € 10 million (December 31, 2019: € 11 million) are disclosed in other non-current non-financial assets. Income tax receivables resulted primarily from tax prepayments that exceeded the actual amount of tax payable for 2020 and prior fiscal years as well as from refund claims for prior years. As of December 31, 2020, income tax liabilities, including liabilities for uncertain tax obligations, amounted to € 1,505 million (December 31, 2019: € 1,402 million). Of this figure, € 45 million related to the non-current income tax liabilities included in other non-current non-financial liabilities (December 31, 2019: € 0 million).