9. Income Taxes

Income tax expense including deferred taxes can be broken down as follows:

Reconciliation to Effective Income Tax Expense

Given an effective tax rate of 30.0% (previous year: 32.2%), the effective income tax expense is €65 million (previous year: €106 million) higher than the expected income tax expense. The expected tax rate is calculated as the weighted average of the tax rates of the individual Group companies and amounts to 25.1% (previous year: 22.6%). In income taxes, the Group recognized a current tax expense of €1 million (previous year: €0 million) for the top-up tax in connection with global minimum taxation. Of the deferred tax benefit of €28 million (previous year: €60 million), €10 million (previous year: 7 million) related to loss carryforwards and €18 million (previous year: €53 million) to temporary differences.

The following table shows the reconciliation of expected to effective income tax expense:

No deferred tax assets have been recognized for tax loss carryforwards and unused tax credits of €275 million (previous year: €271 million), whose expiration dates are given below.

Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits. Total deferred tax assets of €49 million (previous year: €49 million) were recognized for companies that had posted losses in the current or previous years. Given the positive assessments of future business development, it is assumed there is a reasonable probability that future taxable income will be sufficient to allow utilization of the deferred tax assets. The assessment considers structural measures, as well as the profits achieved in the past and those expected in the future. In the current year, no deferred taxes were recognized for temporary differences of €37 million (previous year: €27 million) because positive tax results at the reporting date make it unlikely that they will be used in the foreseeable future.

Deferred taxes relate to the following balance sheet items and matters:

Total net deferred tax assets amounted to €190 million for the year under review (previous year: €171 million). Of the year-on-year increase of €19 million (previous year: increase of €50 million), €2 million was recognized directly in equity or other comprehensive income, increasing equity (previous year: decrease in equity of €4 million). The change in the deferred taxes recognized directly in other comprehensive income included €6 million (previous year: €6 million) in provisions for cash flow hedges, €–2 million (previous year: €–2 million) in provisions for debt instruments measured at FVOCI, and €–2 million (previous year: €–8 million) for the remeasurement of pensions recognized in retained earnings. Income of €28 million (previous year: €60 million) was recognized in profit or loss. Currency effects decreased this item by €11 million (previous year: decrease of €6 million).

Deferred taxes are not recognized for retained earnings at foreign affiliates, as these profits are intended to be reinvested indefinitely in those operations from today’s perspective. These temporary differences, for which no deferred taxes were recognized, amounted to €6,185 million (previous year: €5,135 million). Where distributions are planned, their tax consequences are deferred. The liability is calculated based on the withholding tax rates applicable in each case, taking into account the German tax rate applicable to distributed corporate dividends, where appropriate. Deferred tax liabilities of €15 million (previous year: €29 million) were recognized for this in the reporting period.

Some of our subsidiaries are currently subject to tax audits. In accordance with IFRIC 23, disputed tax items are recognized at their most probable cash outflow.

Income tax receivables at the balance sheet date are the result of refund claims and receivables recorded in connection with uncertain tax positions in accordance with IFRIC 23. In one case, a recorded liquidation loss was not recognized for tax purpose by the tax authorities in Austria. We filed appeals against the tax notices for the affected years. We are confident that our view will prevail in legal proceedings. However, a final decision cannot be expected for several years. For this case we have income tax receivables totalling €45 million (previous year: €45 million) recorded.