12. Income Taxes
The content of this section is not part of the statutory audit of the annual financial statements but has undergone a separate limited assurance by our auditor.
The content of this section is voluntary, unaudited information, which was critically read by the auditor.
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 14.7% in 2025 (previous year: 14.6%).
Following the enactment of the act for an immediate tax-based investment program to strengthen Germany as a business location in July 2025, the German corporate income tax rate will be reduced stepwise between 2028 and 2032 from the current level of 15% to 10% in 2032. This resulted in effects on deferred tax assets and liabilities in 2025. These effects were determined based on detailed tax planning or, where not available, on best‑estimate assumptions, and constitute the primary component of the ‘changes in the tax rate’ line in the reconciliation. Earnings of foreign group entities are taxed at the applicable local tax rates.
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 include 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 the tax benefits are likely to be realized. The valuation of deferred tax assets is based on 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 taxable entity.
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.
BASF falls within the scope of the OECD Pillar Two Model Rules. The relevant Pillar Two legislation has been enacted and is in effect in Germany and in other jurisdictions in which BASF operates.
BASF applies the exception in IAS 12 whereby no deferred tax assets or liabilities are recognized in connection with Pillar Two income taxes under the OECD Model Rules; nor are any disclosures regarding the matter provided.
Tax expense and tax rate
The BASF Group tax rate amounted to 37.1% in 2025 and 30.8% in the previous year. In both years, the tax rate was impacted by the nonrecognition of deferred tax assets, especially in Germany.
The application of the Pillar Two legislation resulted in an additional expense of €18 million (previous year: €22 million), which was included in income taxes.
The tax effects of various underlying matters are presented in the following reconciliation of income taxes and the effective tax rate. An expected tax rate of 30% is continued to be assumed, as the overall tax rate applicable for 2025 remains unchanged.
Million € |
2025 |
2024 |
|---|---|---|
Current tax expense |
1,202 |
940 |
Corporate income tax, solidarity surcharge and trade taxes (Germany) |
23 |
24 |
Foreign income tax |
1,083 |
1,001 |
Taxes for prior years |
96 |
–85 |
Deferred tax expense (+) / income (–) |
–295 |
–367 |
from changes in temporary differences |
21 |
–284 |
from changes in tax loss carryforwards/unused tax credits |
–27 |
34 |
from changes in the tax rate |
–131 |
5 |
from the adjustment of valuation allowances for deferred tax assets |
–158 |
–122 |
Income taxes |
907 |
573 |
|
2025 |
2024 |
||
|---|---|---|---|---|
|
Million € |
% |
Million € |
% |
Income before income taxes |
2,447 |
|
1,861 |
|
Expected tax based on German tax rate (30%) |
733 |
30.0 |
558 |
30.0 |
Foreign tax rate differential |
–155 |
–6.3 |
–233 |
–12.5 |
Tax-exempt income |
–206 |
–8.4 |
–226 |
–12.1 |
Nondeductible expenses |
414 |
16.9 |
331 |
17.8 |
Income of companies accounted for using the equity method (income after taxes) |
–315 |
–12.9 |
–196 |
–10.5 |
Taxes for prior years (current and deferred taxes) |
88 |
3.6 |
–62 |
–3.3 |
Deferred tax liabilities for the future reversal of temporary differences associated with shares in participating interests |
–6 |
–0.2 |
–30 |
–1.6 |
Changes in the tax rate |
–131 |
–5.4 |
5 |
0.3 |
Nonrecognition / changes in valuation allowances for deferred tax assets |
452 |
18.5 |
358 |
19.2 |
Other |
33 |
1.3 |
67 |
3.6 |
Income taxes / effective tax rate |
907 |
37.1 |
573 |
30.8 |
Deferred taxes
Deferred taxes are shown in the following table based on the corresponding balance sheet items.
Million € |
Jan. 1, |
Effects recognized |
Effects recognized |
Business |
Other |
Dec. 31, |
Deferred tax |
Deferred tax |
|---|---|---|---|---|---|---|---|---|
Intangible assets |
–522 |
7 |
–8 |
–3 |
99 |
–427 |
136 |
–563 |
Property, plant and equipment |
–1,384 |
170 |
91 |
–5 |
60 |
–1,068 |
173 |
–1,241 |
Financial assets |
2 |
3 |
5 |
– |
–34 |
–24 |
13 |
–38 |
Inventories and accounts receivable |
–491 |
228 |
11 |
– |
2 |
–250 |
227 |
–477 |
Provisions for pensions and similar obligations |
688 |
–170 |
–335 |
–2 |
–21 |
160 |
248 |
–88 |
Other provisions and liabilities |
1,064 |
–110 |
–98 |
7 |
–22 |
841 |
1,189 |
–348 |
Tax loss carryforwards |
205 |
166 |
–9 |
– |
–5 |
357 |
357 |
– |
Other |
7 |
2 |
–6 |
– |
–1 |
2 |
48 |
–45 |
Deferred tax assets (liabilities) before netting |
–430 |
296 |
–349 |
–3 |
78 |
–408 |
2,391 |
–2,800 |
Netting |
– |
– |
– |
– |
– |
– |
–1,847 |
1,847 |
Deferred tax assets (liabilities) after netting |
–430 |
296 |
–349 |
–3 |
78 |
–408 |
544 |
–953 |
Million € |
Jan. 1, |
Effects recognized |
Effects recognized |
Business |
Other |
Dec. 31, |
Deferred tax |
Deferred tax |
|---|---|---|---|---|---|---|---|---|
Intangible assets |
–678 |
128 |
7 |
–1 |
22 |
–522 |
193 |
–715 |
Property, plant and equipment |
–1,363 |
40 |
–64 |
2 |
1 |
–1,384 |
172 |
–1,556 |
Financial assets |
18 |
–3 |
–6 |
– |
–6 |
2 |
12 |
–10 |
Inventories and accounts receivable |
–602 |
121 |
–15 |
1 |
4 |
–491 |
330 |
–821 |
Provisions for pensions and similar obligations |
862 |
39 |
–213 |
–1 |
1 |
688 |
856 |
–168 |
Other provisions and liabilities |
1,122 |
–13 |
–49 |
– |
4 |
1,064 |
1,368 |
–304 |
Tax loss carryforwards |
163 |
56 |
–18 |
– |
4 |
205 |
205 |
– |
Other |
–44 |
–1 |
49 |
– |
3 |
7 |
53 |
–46 |
Deferred tax assets (liabilities) before netting |
–522 |
367 |
–309 |
1 |
33 |
–430 |
3,189 |
–3,620 |
Netting |
– |
– |
– |
– |
– |
– |
–2,615 |
2,615 |
Deferred tax assets (liabilities) after netting |
–522 |
367 |
–309 |
1 |
33 |
–430 |
574 |
–1,005 |
Deferred tax assets on deductible temporary differences in the amount of €627 million (previous year: €694 million) were not recognized in 2025, as their utilization at reversal was not reasonably certain.
No deferred tax liabilities on income or withholding taxes were recognized for temporary differences from undistributed earnings of subsidiaries as these earnings are either not subject to taxation on payout or are expected to be reinvested for an indefinite period of time. The deferred tax liabilities not recognized in this context amounted to €111 million in 2025 (previous year: €156 million).
Tax loss carryforwards
The table below presents the expiration of tax loss carryforwards for which no deferred tax assets were recognized.
Million € |
2025 |
2024 |
|---|---|---|
Within one year |
3 |
2 |
Within two to five years |
129 |
327 |
After five years (including non-expiring tax loss carryforwards) |
14,719 |
11,496 |
Tax loss carryforwards |
14,851 |
11,825 |
of which German income tax |
6,367 |
5,046 |
of which German trade tax |
6,518 |
5,251 |
of which interest carryforward from the German interest barrier |
718 |
482 |
of which foreign income tax |
1,087 |
672 |
Net surpluses of deferred tax assets for companies that reported tax losses in 2025 or 2024 totaled €125 million as of December 31, 2025 (previous year: €104 million). Deferred tax assets were recognized because, due to planned earnings, the use of temporary differences or loss carryforwards is expected.
Income tax liabilities
Income tax liabilities include assessed income taxes as well as estimated income taxes not yet assessed for the current year.
Contingent liabilities related to income taxes amounted to €88 million (previous year: €89 million).