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).