(15) Income tax
Accounting and measurement policies
Current income taxes
Current income taxes for the reporting period and, where applicable, for prior periods are calculated in the amounts that the tax authorities are expected to demand or reimburse. The calculation is based on the company-specific tax rate applicable in the relevant tax year.
Uncertain income tax assets and liabilities
Factual assessments are made to calculate uncertain income tax assets and liabilities. Uncertain income tax matters are recognized depending on the likelihood that the responsible tax authorities will accept the respective income tax treatment. If recognition by the tax authorities is considered unlikely, the respective uncertain tax asset or uncertain tax liability is measured at the most likely amount. Uncertain income tax liabilities are reported within income tax liabilities. Expected income tax-related penalties and interest that do not fall within the scope of IAS 12 are treated as provisions in line with IAS 37.
Deferred taxes
Deferred tax assets resulting from deductible temporary differences that exceed deferred tax liabilities relating to the same taxation authority and the same taxable entity are recognized if it is considered probable that taxable profit will be available against which they can be utilized. This corresponds to the procedure for recognizing deferred tax assets on unused tax credits and tax loss and interest carryforwards.
The recognition of deferred tax assets requires an estimate of the probability of future use. The influencing factors considered as part of this assessment include the following:
- temporary differences relating to the same taxation authority and the same taxable entity that will be subject to taxation in the future,
- results history,
- results planning, and
- existing tax planning of the respective Group company.
Deferred tax liabilities for planned dividend payments within the next twelve months of profits already generated are recognized.
Significant discretionary decisions and sources of estimation uncertainty
Income taxes
The calculation of the reported assets and liabilities from current and deferred income taxes requires extensive discretionary judgments, assumptions and estimates.
When assessing income tax assets and liabilities, the interpretation of tax provisions may be subject to particular uncertainty. The possibility that the relevant tax authorities will take a differing view concerning the application and interpretation of tax standards cannot be ruled out. Changes to the assumptions underlying the interpretation of tax standards, for example as a result of changes in legislation, are recognized in the balance sheet when the change comes into force.
With regard to deferred tax items, there is uncertainty as to when an asset will be realized or a liability settled. This applies in particular to deferred taxes recognized in the course of company acquisitions. Assessing the recoverability, particularly of tax credits and tax loss and interest carryforwards, requires assumptions and estimates concerning the future taxable income of the respective Group company. Furthermore, the extent to which a subsidiary’s planned dividend distribution is probable within the next twelve months is discretionary.
Income taxes in the consolidated income statement were broken down as follows:
€ million |
|
2022 |
|
2021 |
|---|---|---|---|---|
Current income taxes in the period |
|
-1,344 |
|
-1,078 |
Income taxes for previous periods |
|
28 |
|
45 |
Deferred taxes in the period |
|
369 |
|
174 |
thereof: from temporary differences |
|
338 |
|
206 |
thereof: from changes in tax rates |
|
12 |
|
-23 |
thereof: from tax loss carryforwards |
|
19 |
|
-9 |
Income taxes |
|
-948 |
|
-859 |
Tax reconciliation
The following table presents the reconciliation from the theoretical income tax expense to the income tax expense according to the consolidated income statement. The theoretical income tax expense is determined by applying the statutory tax rate of a corporation headquartered in Darmstadt of 31.7% (2021: 31.7%).
€ million |
|
2022 |
|
2021 |
|---|---|---|---|---|
Profit before income tax |
|
4,287 |
|
3,924 |
|
|
|
|
|
Tax rate |
|
31.7% |
|
31.7% |
Theoretical income tax expense |
|
-1,360 |
|
-1,245 |
Tax rate differences |
|
568 |
|
424 |
Tax effect of companies with a negative contribution to consolidated profit |
|
-71 |
|
-33 |
Income tax for previous periods |
|
28 |
|
45 |
Tax credits |
|
-79 |
|
-30 |
Tax effect on tax loss carryforwards |
|
14 |
|
29 |
Tax effect of non-deductible expenses/Tax-free income/Other tax effects |
|
-48 |
|
-49 |
Income tax expense according to consolidated income statement |
|
-948 |
|
-859 |
|
|
|
|
|
Tax ratio according to consolidated income statement |
|
22.1% |
|
21.9% |
Income taxes consisted of corporation and trade taxes for the German companies and comparable income taxes for non-German companies. Income taxes relating to previous periods recognized in fiscal 2022 resulted in particular from completed tax audits, changes in income tax liabilities for risks from tax audits, and tax assessments for previous years.
Deferred taxes (consolidated income statement)
The reconciliation between deferred taxes on the consolidated balance sheet and deferred taxes on the consolidated income statement is presented in the following table:
€ million |
|
2022 |
|
2021 |
|---|---|---|---|---|
Change in deferred tax assets (consolidated balance sheet) |
|
-193 |
|
-40 |
Change in deferred tax liabilities (consolidated balance sheet) |
|
133 |
|
30 |
Deferred taxes credited/debited to equity |
|
305 |
|
119 |
Changes in scope of consolidation/Currency translation/other changes |
|
124 |
|
66 |
Deferred taxes (consolidated income statement) |
|
369 |
|
174 |
As in the previous year, the item “Changes in scope of consolidation/currency translation/other changes” mainly comprised exchange rate effects for items translated from U.S. dollars to the reporting currency (euro). Additionally, deferred taxes resulted from the acquisition of Exelead Inc., United States, in fiscal 2022.
Changes in tax loss carryforwards
Tax loss carryforwards were structured as follows:
|
|
Dec. 31, 2022 |
|
Dec. 31, 20211 |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
Germany |
|
Outside Germany |
|
Total |
|
Germany |
|
Outside Germany |
|
Total |
||||
Tax loss carryforwards |
|
321 |
|
677 |
|
998 |
|
136 |
|
683 |
|
819 |
||||
Tax loss carryforwards for which a deferred tax asset is recognized |
|
– |
|
136 |
|
136 |
|
2 |
|
60 |
|
62 |
||||
Tax loss carryforwards for which no deferred tax asset is recognized |
|
321 |
|
541 |
|
862 |
|
134 |
|
623 |
|
757 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Potential deferred tax assets for tax loss carryforwards |
|
98 |
|
165 |
|
263 |
|
41 |
|
166 |
|
207 |
||||
Recognized deferred tax assets on tax loss carryforwards |
|
– |
|
30 |
|
30 |
|
– |
|
11 |
|
11 |
||||
Not recognized deferred tax assets on tax loss carryforwards |
|
98 |
|
135 |
|
233 |
|
41 |
|
155 |
|
196 |
||||
|
||||||||||||||||
The majority of the tax loss carryforwards either had no expiry date or can be utilized for up to 20 years.
Deferred tax assets resulting from tax loss carryforwards that exceed deferred tax liabilities relating to the same taxation authority and the same taxable entity are not recognized if it is not considered probable that taxable profit will be available against which they can be utilized.
Deferred taxes (consolidated balance sheet)
Deferred tax assets and liabilities related to the following balance sheet items:
|
|
Dec. 31, 2022 |
|
Dec. 31, 2021 |
||||
|---|---|---|---|---|---|---|---|---|
€ million |
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
Intangible assets |
|
112 |
|
1,365 |
|
99 |
|
1,527 |
Property, plant and equipment |
|
39 |
|
168 |
|
35 |
|
103 |
Current and non-current financial assets |
|
– |
|
32 |
|
1 |
|
7 |
Inventories |
|
846 |
|
23 |
|
757 |
|
20 |
Current and non-current receivables/Other assets |
|
66 |
|
15 |
|
90 |
|
9 |
Current and non-current provisions |
|
526 |
|
51 |
|
859 |
|
57 |
Current and non-current liabilities |
|
170 |
|
49 |
|
85 |
|
68 |
Tax loss carryforwards |
|
30 |
|
– |
|
11 |
|
– |
Tax refund claims/Other |
|
41 |
|
96 |
|
42 |
|
99 |
Deferred taxes (before offsetting) |
|
1,829 |
|
1,798 |
|
1,980 |
|
1,889 |
Offset deferred tax assets and liabilities |
|
-520 |
|
-520 |
|
-478 |
|
-478 |
Deferred taxes (consolidated balance sheet) |
|
1,310 |
|
1,279 |
|
1,502 |
|
1,411 |
The decrease in deferred taxes according to the consolidated balance sheet was due in particular to lower deductible temporary differences resulting from the remeasurement of the net defined benefit obligation through other comprehensive income. This effect was partially offset by the higher level of temporary differences on the elimination of intragroup profits.
Given the positive earnings forecasts, it was assumed that it will be possible to realize recognized deferred tax assets of € 191 million (December 31, 2021: € 82 million), which exceeded deferred tax liabilities relating to the same taxation authority and the same taxable entity, even though there was a loss in the current or previous period.
For deductible temporary differences in the amount of € 71 million (December 31, 2021: € 57 million) no deferred tax assets were recognized in the balance sheet.
Deferred tax liabilities from outside basis differences for planned dividend payouts were recognized in the amount of € 79 million (December 31, 2021: € 93 million). Retained earnings of subsidiaries for which no deferred taxes are recognized amounted to € 10,249 million as of December 31, 2022 (December 31, 2021: € 8,553 million). The resulting temporary differences that will be taxable in future periods in the event of dividend payments would amount to € 582 million as of December 31, 2022 (December 31, 2021: € 476 million).
Income tax receivables and income tax liabilities
Income tax receivables amounted to € 456 million as of December 31, 2022 (December 31, 2021: € 502 million) and mainly resulted from tax prepayments that exceeded the actual amount of tax payable for the past fiscal year and earlier fiscal years, from refund claims for previous years, and from withholding tax claims. As of December 31, 2022, income tax liabilities including liabilities for uncertain tax obligations totaled € 1,522 million (December 31, 2021: € 1,462 million).