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 2017, the weighted average trade tax rate was 14.1% (2016: 14.1%). The 30% rate used to calculate deferred taxes for German Group companies remained unchanged in 2017. 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 €

 

2017

2016

Current tax expense

 

1,832

1,654

Corporate income tax, solidarity surcharge and trade taxes (Germany)

 

464

589

Foreign income tax

 

1,438

1,184

Taxes for prior years

 

(70)

(119)

Deferred tax expense (+) / income (–)

 

(384)

(514)

From changes in temporary differences

 

30

(473)

From changes in tax loss carryforwards / unused tax credits

 

(3)

(43)

From changes in the tax rate

 

(416)

(6)

From valuation allowances on deferred tax assets

 

5

8

Income taxes

 

1,448

1,140

Other taxes as well as sales and consumption taxes

 

260

272

Tax expense

 

1,708

1,412

The current tax expense for corporate income tax, solidarity surcharge and trade taxes (Germany) decreased due to lower income of the subsidiary companies in Germany.

The changes in temporary differences were largely due to realization and currency effects in connection with provisions for pensions, financial liabilites, and intangible assets.

Changes in valuation allowances on deferred tax assets for tax loss carryforwards resulted in income of €6 million in 2017 and expenses of €7 million in 2016.

Other taxes included real estate taxes and other comparable taxes totaling €107 million in 2017 and €109 million in 2016.

Reconciliation of the income taxes and the effective tax rate

 

 

2017

2016

 

 

Million €

%

Million €

%

Income before taxes and minority interests

 

7,800

5,395

Expected tax based on German corporate income tax (15%)

 

1,172

15.0

810

15.0

Solidarity surcharge

 

18

0.2

13

0.2

German trade tax

 

312

4.0

236

4.4

Foreign tax-rate differential

 

707

9.1

402

7.5

Tax-exempt income

 

(20)

(0.3)

(46)

(0.9)

Nondeductible expenses

 

66

0.8

76

1.4

Income after taxes of companies accounted for using the equity method (Income after taxes)

 

(86)

(1.1)

(46)

(0.9)

Taxes for prior years

 

(70)

(0.9)

(119)

(2.2)

Deferred tax liabilities for the future reversal of temporary differences associated with shares in participating interests

 

(1)

0.0

(2)

0.0

Changes in the tax rate

 

(416)

(5.3)

(6)

(0.1)

Other

 

(234)

(2.9)

(178)

(3.3)

Income taxes/effective tax rate

 

1,448

18.6

1,140

21.1

The BASF Group tax rate amounted to 18.6% in 2017 (2016: 21.1%). The lower tax rates resulting from the tax reform in the United States led to deferred tax income in the amount of €379 million.

The foreign tax-rate differential increased due to improvement in earnings in countries with a high tax rate, particularly in Norway, in the Exploration & Production business sector, and in Belgium.

In Other, foreign currency translation differences from the valuation of differences to the tax values as well as additional tax depreciation on oil and gas production facilities in Norway led to tax income.

Taxes for prior years primarily included reversals of long-term tax provisions.

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 €1 million in 2017 (2016: €2 million).

Deferred taxes

Deferred tax assets and liabilities (million €)

 

 

Deferred tax assets

Deferred tax liabilities

 

 

2017

2016

2017

2016

Intangible assets

 

77

90

1,261

1,719

Property, plant and equipment

 

171

180

2,635

3,336

Financial assets

 

10

51

49

84

Inventories and accounts receivable

 

363

348

432

498

Provisions for pensions

 

2,603

3,028

617

431

Other provisions and liabilities

 

1,131

1,446

156

170

Tax loss carryforwards

 

222

279

Other

 

42

107

82

95

Netting

 

(2,501)

(3,016)

(2,501)

(3,016)

Total

 

2,118

2,513

2,731

3,317

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 €10,490 million in 2017 (2016: €8,905 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.

Changes in valuation allowances on deferred tax assets amounted to €92 million, compared with €80 million in 2016. Thereof €24 million (2016: €30 million) pertained to tax loss carryforwards.

Tax loss carryforwards

The regional distribution of tax loss carryforwards is as follows:

Tax loss carryforwards (million €)

 

 

Tax loss carryforwards

Deferred tax assets

 

 

2017

2016

2017

2016

Germany

 

1

Foreign

 

1,485

2,383

222

279

Total

 

1,485

2,384

222

279

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 2018 and in Asia by 2022. No deferred tax assets were recognized for tax loss carryforwards of €804 million (2016: €1,478 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 €1,119 million in 2017 (2016: €1,288 million).