11 – Income Taxes
In Germany, a uniform corporate income tax rate of 15.0% as well as a solidarity surcharge of 5.5% thereon are levied on all distributed 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 2018, the weighted average trade tax rate was 14.1% (2017: 14.1%). The 30% rate used to calculate deferred taxes for German Group companies remained unchanged in 2018. The income 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
Changes in valuation allowances on deferred tax assets for tax loss carryforwards resulted in income of €1 million in 2018 and of €6 million in 2017. Other taxes included real estate taxes and other comparable taxes totaling €110 million in 2018 and €101 million in 2017.
The BASF Group tax rate amounted to 21.5% in 2018 (2017: 18.7%). The tax rate reductions resulting primarily from the tax reform in Belgium led to deferred tax income of €17 million in 2018. The reduced tax rates resulting from the tax reforms in the United States, Belgium, France, Germany and Argentina led to deferred tax income of €426 million in 2017, of which €379 million in the United States.
Tax expense (Million €) |
|
|
|
|---|---|---|---|
|
2018 |
2017 |
|
Current tax expense |
|
1,255 |
1,506 |
Corporate income tax, solidarity surcharge and trade taxes (Germany) |
|
386 |
414 |
Foreign income tax |
|
1,072 |
1,173 |
Taxes for prior years |
|
(203) |
(81) |
Deferred tax expense (+)/income (–) |
|
(117) |
(216) |
From changes in temporary differences |
|
(57) |
239 |
From changes in tax loss carryforwards/unused tax credits |
|
(40) |
(34) |
From changes in the tax rate |
|
(18) |
(426) |
From valuation allowances on deferred tax assets |
|
(2) |
5 |
Income taxes |
|
1,138 |
1,290 |
Other taxes as well as sales and consumption taxes |
|
232 |
230 |
Tax expense |
|
1,370 |
1,520 |
Reconciliation of income taxes and the effective tax rate |
|||||
|---|---|---|---|---|---|
|
|
2018 |
2017 |
||
|
|
Million € |
% |
Million € |
% |
Income before income taxes |
|
5,288 |
– |
6,882 |
– |
Expected tax based on German corporate income tax rate (15%) |
|
794 |
15.0 |
1,032 |
15.0 |
Solidarity surcharge |
|
15 |
0.3 |
18 |
0.3 |
German trade tax |
|
145 |
2.7 |
288 |
4.2 |
Foreign tax rate differential |
|
420 |
7.9 |
498 |
7.2 |
Tax-exempt income |
|
(24) |
(0.5) |
(19) |
(0.3) |
Nondeductible expenses |
|
64 |
1.2 |
62 |
0.9 |
Income of companies accounted for using the equity method (Income after taxes) |
|
(40) |
(0.7) |
(48) |
(0.7) |
Taxes for prior years |
|
(203) |
(3.8) |
(81) |
(1.2) |
Deferred tax liabilities for the future reversal of temporary differences associated with shares in participating interests |
|
5 |
0.1 |
(1) |
0.0 |
Changes in the tax rate |
|
(18) |
(0.3) |
(426) |
(6.2) |
Other |
|
(20) |
(0.4) |
(33) |
(0.5) |
Income taxes/effective tax rate |
|
1,138 |
21.5 |
1,290 |
18.7 |
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 primarily leads to deferred tax liabilities.
Deferred taxes
Deferred tax assets and liabilities 2018 (Million €) |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
January 1, 2018, net |
Effects recognized in income |
Effects recognized in equity (OCI) |
Business combinations |
Other |
Recognized in equity |
December 31, 2018, net |
Deferred tax assets |
Deferred tax liabilities |
Intangible assets |
|
(1,184) |
40 |
(5) |
(272) |
156 |
– |
(1,265) |
94 |
1,359 |
Property, plant and equipment |
|
(2,464) |
(126) |
(1) |
6 |
1,609 |
– |
(976) |
115 |
1,091 |
Financial assets |
|
(39) |
52 |
0 |
– |
(1) |
– |
12 |
60 |
48 |
Inventories and accounts receivable |
|
(69) |
(62) |
38 |
(40) |
(70) |
– |
(203) |
272 |
475 |
Provisions for pensions |
|
1,986 |
2 |
122 |
13 |
26 |
– |
2,149 |
2,657 |
508 |
Other provisions and liabilities |
|
975 |
146 |
(1) |
6 |
(493) |
– |
633 |
738 |
105 |
Tax loss carryforwards |
|
222 |
36 |
0 |
0 |
(53) |
– |
205 |
205 |
– |
Other |
|
(40) |
29 |
0 |
0 |
11 |
– |
0 |
83 |
83 |
Deferred tax assets (liabilities) before netting |
|
(613) |
117 |
153 |
(287) |
1,185 |
– |
555 |
4,224 |
3,669 |
Netting |
|
– |
– |
– |
– |
– |
– |
– |
(1,882) |
(1,882) |
Deferred tax assets (liabilities) after netting |
|
(613) |
117 |
153 |
(287) |
1,185 |
– |
555 |
2,342 |
1,787 |
Deferred tax assets and liabilities 2017 (Million €) |
|||
|---|---|---|---|
|
|
Deferred tax assets |
Deferred tax liabilities |
Intangible assets |
|
77 |
1,261 |
Property, plant and equipment |
|
171 |
2,635 |
Financial assets |
|
10 |
49 |
Inventories and accounts receivable |
|
363 |
432 |
Provisions for pensions |
|
2,603 |
617 |
Other provisions and liabilities |
|
1,131 |
156 |
Tax loss carryforwards |
|
222 |
– |
Other |
|
42 |
82 |
Netting |
|
(2,501) |
(2,501) |
Total |
|
2,118 |
2,731 |
Undistributed earnings of subsidiaries resulted in temporary differences of €14,088 million in 2018 (2017: €10,490 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 an indefinite period of time.
Changes in valuation allowances on deferred tax assets amounted to €91 million in 2018, compared with €92 million in 2017. Of this figure, €23 million in 2018 (2017: €24 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 |
||
|
2018 |
2017 |
2018 |
2017 |
|
Germany |
|
– |
– |
– |
– |
Foreign |
|
1,143 |
1,485 |
205 |
222 |
Total |
|
1,143 |
1,485 |
205 |
222 |
Tax loss carryforwards exist in all regions, especially in South America, Asia and Europe. Tax losses in Germany 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 2023. No deferred tax assets were recognized for tax loss carryforwards of €371 million in 2018 (2017: €804 million).
Tax liabilities
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 €695 million as of December 31, 2018 (December 31, 2017: €1,119 million).