11 – Income taxes
In Germany, a uniform corporate income tax rate of 15.0% as well as a solidarity surcharge of 5.5% thereon is levied on all paid out and retained earnings. In addition to corporate income tax, income generated in Germany is subject to a trade tax that varies depending on the municipality in which the company is represented. Due to a constant rate of assessment for Ludwigshafen, Germany, in 2016, the weighted average trade tax rate was 14.1% (2015: 14.1%). The 30% rate used to calculate deferred taxes for German Group companies remained unchanged in 2016. The profits of foreign Group companies are assessed using the tax rates applicable in their respective countries. These are also generally used to calculate deferred taxes to the extent that tax rate adjustments for the future have not yet been enacted.
Tax expense
Million € |
|
2016 |
2015 |
---|---|---|---|
Current tax expense |
|
1,654 |
1,610 |
Corporate income tax, solidarity surcharge and trade taxes (Germany) |
|
589 |
514 |
Foreign income tax |
|
1,184 |
1,231 |
Taxes for prior years |
|
(119) |
(135) |
Deferred tax expense (+) / income (–) |
|
(514) |
(363) |
From changes in temporary differences |
|
(473) |
(314) |
From changes in tax loss carryforwards / unused tax credits |
|
(43) |
(59) |
From changes in the tax rate |
|
(6) |
7 |
From valuation allowances on deferred tax assets |
|
8 |
3 |
Income taxes |
|
1,140 |
1,247 |
Other taxes as well as sales and consumption taxes |
|
272 |
302 |
Tax expense |
|
1,412 |
1,549 |
Changes in valuation allowances on deferred tax assets for tax loss carryforwards resulted in expenses of €7 million in 2016 and expenses of €4 million in 2015.
Other taxes included real estate taxes and other comparable taxes totaling €109 million in 2016 and €106 million in 2015.
Reconciliation of the effective tax rate and the tax rate in Germany |
|||||
|
|
2016 |
2015 | ||
---|---|---|---|---|---|
|
|
Million € |
% |
Million € |
% |
Income before taxes and minority interests |
|
5,395 |
– |
5,548 |
– |
Expected tax based on German corporate income tax (15%) |
|
810 |
15.0 |
832 |
15.0 |
Solidarity surcharge |
|
13 |
0.2 |
11 |
0.2 |
German trade tax |
|
236 |
4.4 |
234 |
4.2 |
Foreign tax-rate differential |
|
402 |
7.5 |
225 |
4.1 |
Tax-exempt income |
|
(46) |
(0.9) |
(103) |
(1.9) |
Nondeductible expenses |
|
76 |
1.4 |
239 |
4.3 |
Income after taxes of companies accounted for using the equity method |
|
(46) |
(0.9) |
(38) |
(0.7) |
Taxes for prior years |
|
(119) |
(2.2) |
(135) |
(2.4) |
Deferred tax liabilities for the future reversal of temporary differences associated with shares in participating interests |
|
(2) |
0.0 |
(28) |
(0.5) |
Other |
|
(184) |
(3.4) |
10 |
0.2 |
Income taxes / effective tax rate |
|
1,140 |
21.1 |
1,247 |
22.5 |
The BASF Group tax rate amounted to 21.1% in 2016 (2015: 22.5%). The lower tax rate was mainly due to deferred tax income arising from the valuation of the differences to the tax values as a result of foreign currency translation. Taxes for prior years primarily contained reversals of long-term tax provisions.
The foreign tax-rate differential increased due to improvement in earnings in the Exploration & Production business sector in countries with a high tax rate, particularly in Norway. In the previous year, nondeductible expenses particularly included an impairment of the goodwill of the Exploration & Production business sector. In Other, currency driven valuation of the differences to the tax values as well as additional tax depreciation on oil and gas production facilities in Norway led to tax income.
Future reversals of temporary differences for shares in investments that are assumed to have a planning horizon of one year led to deferred tax income of €2 million in 2016 (2015: €28 million).
Deferred taxes
Deferred tax assets and liabilities (million €) |
|||||
|
|
Deferred tax assets |
Deferred tax liabilities | ||
---|---|---|---|---|---|
|
|
2016 |
2015 |
2016 |
2015 |
Intangible assets |
|
90 |
90 |
1,719 |
1,553 |
Property, plant and equipment |
|
180 |
182 |
3,336 |
3,322 |
Financial assets |
|
51 |
12 |
84 |
106 |
Inventories and accounts receivable |
|
348 |
251 |
498 |
517 |
Provisions for pensions |
|
3,028 |
2,410 |
431 |
472 |
Other provisions and liabilities |
|
1,446 |
1,346 |
170 |
177 |
Tax loss carryforwards |
|
309 |
271 |
– |
– |
Other |
|
157 |
164 |
95 |
107 |
Netting |
|
(3,016) |
(2,873) |
(3,016) |
(2,873) |
Valuation allowances for deferred tax assets |
|
(80) |
(62) |
– |
– |
Thereof for tax loss carryforwards |
|
(30) |
(25) |
– |
– |
Total |
|
2,513 |
1,791 |
3,317 |
3,381 |
Thereof current |
|
595 |
439 |
179 |
256 |
Deferred taxes result from temporary differences between tax balances and the measurement of assets and liabilities according to IFRS as well as from tax loss carryforwards and unused tax credits. The remeasurement of all the assets and liabilities associated with acquisitions according to IFRS 3 has resulted in significant deviations between fair values and the values in the tax accounts. This leads primarily to deferred tax liabilities.
Undistributed earnings of subsidiaries resulted in temporary differences of €8,905 million in 2016 (2015: €9,241 million) for which deferred tax liabilities were not recognized, as they are either not subject to taxation on payout or they are expected to be reinvested for indefinite periods of time.
Tax loss carryforwards
The regional distribution of tax loss carryforwards is as follows:
Tax loss carryforwards (million €) |
|||||
|
|
Tax loss carryforwards |
Deferred tax assets | ||
---|---|---|---|---|---|
|
|
2016 |
2015 |
2016 |
2015 |
Germany |
|
1 |
1 |
– |
– |
Foreign |
|
2,383 |
2,490 |
279 |
246 |
Total |
|
2,384 |
2,491 |
279 |
246 |
Tax loss carryforwards exist in all regions, especially in Europe and Asia. German tax losses may be carried forward indefinitely. In foreign countries, tax loss carryforwards are in some cases only possible for a limited period of time. The bulk of the tax loss carryforwards will expire in Europe by 2019 and in Asia by 2021. No deferred tax assets were recognized for tax loss carryforwards of €1,478 million in 2016 (2015: €1,767 million).
Tax obligations
Tax obligations primarily include assessed income taxes and other taxes as well as estimated income taxes not yet assessed for the current year. Tax obligations amounted to €1,288 million in 2016 (2015: €1,082 million).