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).