Operating Activities

(15) Income tax

Income taxes in the consolidated income statement were broken down as follows:

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 31.9% (2023: 31.7%).

Income taxes consisted of corporation and trade taxes for the German companies and comparable income taxes for non-German companies. Income taxes relating to previous periods recognized in fiscal 2024 resulted in particular from completed tax audits, changes in income tax liabilities for risks from tax audits, and tax assessments for previous years.

In the previous year, a non-recurring deferred tax income in other tax effects had a reducing effect on the tax rate.

Global minimum taxation (Pillar II)

The legislation on global minimum tax was published in the German Federal Law Gazette on December 27, 2023, and came into force on January 1, 2024. Although the tax rules apply to the ultimate parent company of the Group, E. Merck Kommanditgesellschaft, Darmstadt, Germany, supplementary taxes could be payable in a number of jurisdictions, and this could have an impact on the Group.

Under the regulations on global minimum taxation, the Group is obliged to determine the effective tax rate for each country in which its business units operate within the meaning of the legislation and, where the effective tax rate is lower than the minimum tax rate of 15%, to pay a supplementary tax in the amount of the difference. In fiscal 2024, the Group took all of the necessary measures to ensure compliance with the reporting obligations and tax compliance requirements arising from the legislation.

As in the previous year, the Group applied the exception provided by IAS 12.88A for the recognition and disclosure of information about deferred tax assets and liabilities in connection with income taxes relating to global minimum taxation. Income taxes of € 28 million were recognized under the global minimum tax rules in fiscal 2024, primarily in connection with operating activities in Ireland and Switzerland.

Deferred taxes

The allocation of deferred tax assets and liabilities to the balance sheet items and the reconciliation of deferred taxes in the consolidated income statement and the consolidated balance sheet are presented in the following table:

The item “Changes in scope of consolidation/Currency translation/Other changes” mainly comprised deferred tax effects resulting from the acquisition of Mirus Bio LLC, United States (see Note (6) “Acquisitions and divestments”) and effects from reclassifications to assets held for sale. As in the previous year, there were also exchange rate effects, mainly resulting from items translated from U.S. dollars to the reporting currency (euro).

Deferred taxes for “Tax refund claims/Other” in the consolidated income statement primarily resulted from adjustments for deferred tax liabilities for planned dividend payouts (outside basis differences).

Given the positive earnings forecasts, it was assumed that it will be possible to realize recognized deferred tax assets of € 381 million (December 31, 2023: € 597 million), which exceeded deferred tax liabilities relating to the same taxation authority and the same taxable entity, even though there was a loss in the current or previous period.

No deferred tax assets were recognized in the balance sheet for deductible temporary differences and other interest carryforwards in the amount of € 11,915 million (December 31, 2023: € 13,220 million). The majority of these differences can only be utilized until 2029. Their utilization for tax purposes is not expected during this period.

Deferred tax liabilities from outside basis differences for planned dividend payouts were recognized in the amount of € 88 million (December 31, 2023: € 157 million). Retained earnings of subsidiaries for which no deferred taxes are recognized amounted to € 12,124 million as of December 31, 2024 (December 31, 2023: € 10,627 million). The resulting temporary differences taxable in future periods in the event of dividend payments would amount to € 659 million as of December 31, 2024 (December 31, 2023: € 603 million).

Changes in tax loss carryforwards

Tax loss carryforwards were structured as follows:

The majority of the tax loss carryforwards either had no expiration date or can be utilized for up to 20 years. This also applies to losses for which no deferred taxes were recognized.

Deferred tax assets resulting from tax loss carryforwards that exceed deferred tax liabilities relating to the same taxation authority and the same taxable entity are not recognized if it is not considered probable that taxable profit will be available against which they can be utilized.

Income tax receivables and income tax liabilities

Income tax receivables amounted to € 520 million as of December 31, 2024 (December 31, 2023: € 482 million) and mainly resulted from tax prepayments that exceeded the actual amount of tax payable for the past fiscal year and earlier fiscal years, from refund claims for previous years and from withholding tax claims. As of December 31, 2024, income tax liabilities, including liabilities for uncertain tax obligations, totaled € 1,564 million (December 31, 2023: € 1,473 million).

Allocation of taxing rights (Pillar I)

Based on the information currently available, the Group expects the continued efforts to achieve international convergence on tax rules as part of the OECD’s Inclusive Framework to also have an impact on the Group’s taxation.

The planned allocation of taxing rights between jurisdictions as part of the OECD rules is currently still being negotiated. An analysis of the available drafts found that the rules are likely to apply to the Group. Due to the status of the negotiations and the lack of clarity concerning the participation of key nations, it is not currently possible to make a reliable statement about the expected impact.