11 – Income Taxes Accounting policies 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 higher rate of assessment for Ludwigshafen, Germany, in 2019, the weighted average trade tax rate was 14.5% (2018: 14.1%). The 30% rate used to calculate deferred taxes for German Group companies remained unchanged in 2019. The income of foreign Group companies is 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. Deferred taxes are recorded for temporary differences between the carrying amount of assets and liabilities in the financial statements according to IFRS and the carrying amounts for tax purposes as well as for tax loss carryforwards and unused tax credits. These also comprise temporary differences arising from business combinations, with the exception of goodwill. Deferred tax assets and liabilities are calculated using the respective country-specific tax rates applicable for the period in which the asset or liability is realized or settled. Tax rate changes enacted or substantively enacted on or before the balance sheet date are taken into consideration. Deferred tax assets are offset against deferred tax liabilities provided they are related to the same taxation authority and have the same maturities. Surpluses of deferred tax assets are only recognized provided that the tax benefits are likely to be realized. The valuation of deferred tax assets is based on the probability of a reversal of the differences and the assessment of the ability to utilize tax loss carryforwards and unused tax credits. This depends on whether future taxable profits will exist during the period in which temporary differences are reversed and in which tax loss carryforwards and unused tax credits can be claimed. The valuation of deferred tax assets is based on internal projections of the future earnings of the particular Group company. Changes in deferred taxes in the balance sheet are recorded as deferred tax expense or income if the underlying transaction is not to be recognized directly in equity or in income and expenses recognized in equity. For those effects which have been recognized in equity, changes to deferred tax assets and tax liabilities are also recognized directly in equity. Deferred tax liabilities are recognized for differences between the proportional IFRS equity and the tax base of the investment in a consolidated subsidiary if a reversal of these differences is expected in the foreseeable future. Deferred tax liabilities are recognized for dividend distributions planned for the following year if these distributions lead to a reversal of temporary differences. Provisions for German trade income tax, corporate income tax and similar income taxes are calculated and recognized based on the expected taxable income of the consolidated companies less any prepayments that have been made. Provisions are set up for interest accrued. Other taxes to be assessed are considered accordingly. Tax expense and tax rate The current tax expense for corporate income tax, solidarity surcharge and trade taxes (Germany) declined due to lower income from tax group companies in Germany. As in the previous year, changes in valuation allowances on deferred tax assets for tax loss carryforwards resulted in an expense of €1 million in 2019. Other taxes included real estate taxes and other comparable taxes totaling €101 million in 2019 and €103 million in 2018. The BASF Group tax rate amounted to 22.9% in 2019, after 21.3% in 2018. The increase was mainly attributable to taxes for prior years, especially in Germany and the United States. In Germany, income from the release of tax provisions in 2018 contrasted with expenses for additions to tax provisions in 2019. In the United States, tax-exempt income for prior years was lower than in 2018. The main offsetting effect was lower trade tax expenses as a result of the lower taxable income of the German companies. (XLS:) XLS Tax expense (Million €) 2019 2018 Current tax expense 1,053 1,229 Corporate income tax, solidarity surcharge and trade taxes (Germany) 114 394 Foreign income tax 929 1,094 Taxes for prior years 10 (259) Deferred tax expense (+) / income (–) (297) (112) From changes in temporary differences (298) (67) From changes in tax loss carryforwards/unused tax credits 23 (35) From changes in the tax rate (26) (18) From valuation allowances on deferred tax assets 4 8 Income taxes 756 1,117 Other taxes as well as sales and consumption taxes 224 229 Tax expense 980 1,346 (XLS:) XLS Reconciliation of income taxes and the effective tax rate 2019 2018 Million € % Million € % Income before income taxes 3,302 5,233 Expected tax based on German corporate income tax rate (15%) 495 15.0 783 15.0 Solidarity surcharge 2 0.1 12 0.2 German trade tax 12 0.4 154 2.9 Foreign tax rate differential 257 7.8 432 8.2 Tax-exempt income (41) (1.2) (24) (0.5) Nondeductible expenses 61 1.8 62 1.2 Income of companies accounted for using the equity method (Income after taxes) (17) (0.5) (40) (0.8) Taxes for prior years 10 0.3 (259) (4.9) Deferred tax liabilities for the future reversal of temporary differences associated with shares in participating interests (6) (0.2) (5) (0.1) Changes in the tax rate (26) (0.8) (18) (0.3) Other 9 0.2 20 0.4 Income taxes/effective tax rate 756 22.9 1,117 21.3 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 (XLS:) XLS Deferred tax assets and liabilities 2019 (Million €) January 1, 2019, net Effects recognized in income Effects recognized in equity (OCI) Business combinations Other Recognized in equity December 31, 2019, net Deferred tax assets Deferred tax liabilities Intangible assets (1,265) 149 (4) 59 125 – (934) 148 (1,082) Property, plant and equipment (976) (113) (16) (2) 26 – (1,081) 122 (1,203) Financial assets 12 35 (1) – (182) – (136) 54 (190) Inventories and accounts receivable (203) 48 (47) (14) 17 – (199) 261 (460) Provisions for pensions and similar obligations 2,149 (48) 354 – (31) – 2,424 3,153 (729) Other provisions and liabilities 633 222 (23) – 9 – 841 942 (101) Tax loss carryforwards 205 13 1 5 (31) – 193 193 – Other 0 (9) (5) (4) 33 – 15 83 (68) Deferred tax assets (liabilities) before netting 555 297 259 44 (34) – 1,123 4,956 (3,833) Netting – – – – – – – (2,069) 2,069 Deferred tax assets (liabilities) after netting 555 297 259 44 (34) – 1,123 2,887 (1,764) (XLS:) XLS 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) 34 (5) (272) 162 – (1,265) 94 (1,359) Property, plant and equipment (2,464) (127) (1) 6 1,610 – (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 and similar obligations 1,986 2 122 13 26 – 2,149 2,657 (508) Other provisions and liabilities 975 148 (1) 6 (495) – 633 738 (105) Tax loss carryforwards 222 (11) 0 0 (6) – 205 205 – Other (40) 76 0 0 (36) – 0 83 (83) Deferred tax assets (liabilities) before netting (613) 112 153 (287) 1,190 – 555 4,224 (3,669) Netting – – – – – – – (1,882) 1,882 Deferred tax assets (liabilities) after netting (613) 112 153 (287) 1,190 – 555 2,342 (1,787) Undistributed earnings of subsidiaries resulted in temporary differences of €13,335 million in 2019 (2018: €14,088 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 €98 million in 2019, compared with €87 million in 2018. Of this figure, €65 million pertained to tax loss carryforwards in 2019 (2018: €23 million). Tax loss carryforwards The regional distribution of tax loss carryforwards is as follows: (XLS:) XLS Tax loss carryforwards (Million €) Tax loss carryforwards Deferred tax assets 2019 2018 2019 2018 Germany 0 0 – – Foreign 950 1,143 195 205 Total 950 1,143 195 205 Tax loss carryforwards exist in all regions. Tax losses in Germany may be carried forward indefinitely. In some foreign countries, tax loss carryforwards are only possible for a limited period of time. Overall, just under half of the tax loss carryforwards will expire. The bulk of the expirable tax loss carryforwards will expire in Asia by 2023 and in Europe and North America after 2024. No deferred tax assets were recognized for tax loss carryforwards of €205 million in 2019 (2018: €370 million). Tax liabilities Tax liabilities primarily include assessed income taxes and other taxes as well as estimated income taxes not yet assessed for the current year. BASF began reporting tax provisions, previously included in other provisions, with effective and deferred tax liabilities in 2019. The prior-year figures have been restated accordingly. Tax liabilities amounted to €3,036 million as of December 31, 2019 (December 31, 2018: €3,041 million). back next