12. 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. It varies depending on the municipality in which the company is represented. The weighted average tax rate was 14.6% in 2021 (2020: 14.5%). The 30% rate used to calculate deferred taxes for German Group companies remained unchanged in 2021. The income of foreign Group companies is assessed using the tax rates applicable in their respective countries.
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. 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 assessment of recoverability 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 unless the underlying transaction is 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 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. This interest is reported under other financial result, not tax expense. Other taxes to be assessed are considered accordingly.
IFRIC 23 clarifies the application of the recognition and measurement policies from IAS 12 when there is uncertainty regarding income tax-related treatment of individual transactions. They are accounted for with the assumption that tax authorities will examine the questionable transaction and have all relevant information. The amount of risk provisions is calculated and reviewed with consideration for the results of past tax audits as well as the legal assessment of not yet audited transactions and the risk of a deviating tax-related interpretation by the tax authorities. The most probable value of the individual risks is recognized.
Tax expense and tax rate
The BASF Group tax rate amounted to 19.2% in 2021 (2020: 5.8%). The relatively high tax rate in relation to 2020 resulted primarily from lower nondeductible operating expenses, caused largely in the previous year by non-tax-effective impairments of goodwill, and from the increased earnings contributions of countries with higher tax rates. Particularly higher tax-exempt income, mainly in connection with the divestiture of the share in Solenis, had an offsetting impact.
|
2021 |
2020 |
|---|---|---|
Current tax expense |
1,436 |
398 |
Corporate income tax, solidarity surcharge and trade taxes (Germany) |
38 |
73 |
Foreign income tax |
1,575 |
739 |
Taxes for prior years |
–176 |
–414 |
Deferred tax expense (+)/income (–) |
–6 |
–489 |
From changes in temporary differences |
49 |
–129 |
From changes in tax loss carryforwards/unused tax credits |
–67 |
–372 |
From changes in the tax rate |
–2 |
32 |
From valuation allowances on deferred tax assets |
14 |
–20 |
Income taxes |
1,430 |
–91 |
|
2021 |
2020 |
||
|---|---|---|---|---|
|
Million € |
% |
Million € |
% |
Income before income taxes |
7,448 |
|
–1,562 |
|
Expected tax based on German corporate income tax rate (15%) |
1,117 |
15.0 |
–234 |
15.0 |
Solidarity surcharge |
0 |
0.0 |
2 |
–0.1 |
Trade taxes |
78 |
1.1 |
–255 |
16.3 |
Foreign tax rate differential |
548 |
7.4 |
55 |
–3.5 |
Tax-exempt income |
–211 |
–2.8 |
–64 |
4.1 |
Nondeductible expenses |
140 |
1.9 |
339 |
–21.7 |
Income of companies accounted for using the equity method (income after taxes) |
–56 |
–0.7 |
106 |
–6.8 |
Taxes for prior years (current and deferred taxes) |
–176 |
–2.4 |
–103 |
6.6 |
Deferred tax liabilities for the future reversal of temporary differences associated with shares in participating interests |
–6 |
–0.1 |
–66 |
4.2 |
Changes in the tax rate |
–2 |
0.0 |
32 |
–2.1 |
Other |
–3 |
0.0 |
97 |
–6.2 |
Income taxes / effective tax rate |
1,430 |
19.2 |
–91 |
5.8 |
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
|
January 1, 2021, net |
Effects recognized in income |
Effects recognized in equity (OCI) |
Business combinations |
Other |
December 31, 2021, net |
Deferred tax assets |
Deferred tax liabilities |
|---|---|---|---|---|---|---|---|---|
Intangible assets |
–955 |
–37 |
–26 |
–22 |
–6 |
–1,045 |
41 |
–1,086 |
Property, plant and equipment |
–1,068 |
–18 |
–64 |
–3 |
22 |
–1,131 |
303 |
–1,434 |
Financial assets |
–74 |
8 |
–26 |
– |
25 |
–67 |
43 |
–109 |
Inventories and accounts receivable |
–169 |
–187 |
–53 |
–1 |
37 |
–372 |
292 |
–664 |
Provisions for pensions and similar obligations |
2,851 |
18 |
–790 |
– |
6 |
2,085 |
2,781 |
–695 |
Other provisions and liabilities |
831 |
148 |
78 |
2 |
3 |
1,062 |
1,168 |
–106 |
Tax loss carryforwards |
505 |
69 |
4 |
1 |
1 |
580 |
580 |
– |
Other |
18 |
4 |
–3 |
– |
–31 |
–11 |
63 |
–75 |
Deferred tax assets (liabilities) before netting |
1,939 |
6 |
–878 |
–23 |
57 |
1,101 |
5,270 |
–4,169 |
Netting |
– |
– |
– |
– |
– |
– |
–2,670 |
2,670 |
Deferred tax assets (liabilities) after netting |
1,939 |
6 |
–878 |
–23 |
57 |
1,101 |
2,600 |
–1,499 |
|
January 1, 2020, net |
Effects recognized in income |
Effects recognized in equity (OCI) |
Business combinations |
Other |
December 31, 2020, net |
Deferred tax assets |
Deferred tax liabilities |
|---|---|---|---|---|---|---|---|---|
Intangible assets |
–934 |
–8 |
33 |
–42 |
–4 |
–955 |
89 |
–1,044 |
Property, plant and equipment |
–1,081 |
–65 |
101 |
–36 |
13 |
–1,068 |
246 |
–1,314 |
Financial assets |
–136 |
64 |
5 |
– |
–7 |
–74 |
44 |
–118 |
Inventories and accounts receivable |
–199 |
82 |
–31 |
–3 |
–18 |
–169 |
232 |
–401 |
Provisions for pensions and similar obligations |
2,424 |
28 |
384 |
14 |
1 |
2,851 |
3,342 |
–491 |
Other provisions and liabilities |
841 |
42 |
–91 |
3 |
36 |
831 |
986 |
–155 |
Tax loss carryforwards |
193 |
332 |
–11 |
1 |
–10 |
505 |
505 |
– |
Other |
15 |
14 |
–9 |
2 |
–4 |
18 |
82 |
–64 |
Deferred tax assets (liabilities) before netting |
1,123 |
489 |
381 |
–61 |
7 |
1,939 |
5,526 |
–3,587 |
Netting |
– |
– |
– |
– |
– |
– |
–2,140 |
2,140 |
Deferred tax assets (liabilities) after netting |
1,123 |
489 |
381 |
–61 |
7 |
1,939 |
3,386 |
–1,447 |
Deferred tax assets on deductible temporary differences in the amount of €245 million were not recognized in 2021 (2020: €182 million), as their utilization at reversal was not reasonably certain.
Undistributed earnings of subsidiaries resulted in temporary differences of €11,587 million in 2021 (2020: €10,398 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.
Tax loss carryforwards
No deferred tax assets were recognized for tax loss carryforwards of €172 million in 2021 (2020: €257 million). Of these, €3 million will expire in 2022, €4 million in 2023, €2 million in 2024, €12 million in 2025, €52 million in 2026, and €20 million in 2027 and thereafter. The remaining €79 million will not expire.
Surpluses of deferred tax assets for companies that reported tax losses in 2021 or 2020 totaled €2,379 million as of December 31, 2021 (December 31, 2020: €2,645 million). Deferred taxes were recognized because, due to planned earnings, the use of temporary differences or loss carryforwards is expected.
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.