11. Taxes

The breakdown of tax expenses by type is shown in the table below:

Income Taxes

 

 

 

 

 

 

 

2017

 

2018

 

 

€ million

 

€ million

Current taxes

 

(656)

 

(696)

Tax expense current year

 

(681)

 

(677)

Tax expense prior years

 

25

 

(19)

Deferred taxes

 

15

 

49

from temporary differences

 

30

 

51

from tax loss carryforwards and tax credits

 

(15)

 

(2)

Total

 

(641)

 

(647)

The deferred tax assets and liabilities were allocated to the items in the statements of financial position as shown in the table below:

Deferred Tax Assets and Liabilities

 

 

 

 

 

 

 

 

 

 

 

Dec. 31, 2017

 

Dec. 31, 2018

 

 

Deferred tax assets

 

Deferred tax liabilities

 

Deferred tax assets

 

Deferred tax liabilities

 

 

€ million

 

€ million

 

€ million

 

€ million

Intangible assets

 

62

 

(21)

 

49

 

(19)

Property, plant and equipment

 

159

 

(192)

 

144

 

(194)

Financial assets

 

2

 

(51)

 

 

(60)

Inventories

 

31

 

(2)

 

40

 

(2)

Receivables

 

12

 

(5)

 

4

 

(13)

Provisions for pensions and other post-employment benefits

 

479

 

(86)

 

530

 

(27)

Other provisions

 

53

 

(17)

 

91

 

(21)

Liabilities

 

113

 

(2)

 

105

 

(2)

Tax loss carryforwards

 

6

 

 

4

 

Total

 

917

 

(376)

 

967

 

(338)

of which noncurrent

 

834

 

(348)

 

881

 

(301)

Offsetting

 

(215)

 

215

 

(185)

 

185

Recognition

 

702

 

(161)

 

782

 

(153)

Of the total tax loss carryforwards of €17 million (previous year: €30 million), an amount of €16 million (previous year: €22 million) is expected to be usable within a foreseeable period. The decrease in loss carryforwards was mainly due to the use of existing loss carryforwards in the reporting year and tax reassessments for prior years. Deferred tax assets of €4 million (previous year: €6 million) were recognized for the amount of loss carryforwards expected to be usable.

The use of €1 million (previous year: €8 million) of tax loss carryforwards was subject to legal or economic restrictions with regard to its usability. Consequently, no deferred tax assets were recognized for this amount.

No material tax credits were recorded in either the reporting year or the prior year.

Unusable tax loss carryforwards will expire as shown in the table below:

Expiration of Unusable Tax Loss Carryforwards

 

 

 

 

 

 

 

Tax loss carryforwards

 

 

Dec. 31, 2017

 

Dec. 31, 2018

 

 

€ million

 

€ million

Within one year

 

 

Within two years

 

 

Within three years

 

 

Within four years

 

 

Within five years

 

 

Thereafter

 

8

 

1

Total

 

8

 

1

In 2018, subsidiaries that reported losses for the reporting year or the previous year recognized net deferred tax assets totaling €7 million (previous year: €5 million) from temporary differences and tax loss carryforwards. These assets were considered to be unimpaired because the companies concerned were expected to generate taxable income in the future.

In the reporting year, deferred tax liabilities of €21 million (previous year: €18 million) were recognized for planned dividend distributions by subsidiaries. No deferred tax liabilities were recognized for temporary differences of €71 million (previous year: €46 million) relating to shares in subsidiaries, as it is unlikely that these temporary differences will reverse in the foreseeable future.

The reported tax expense of €647 million (previous year: €641 million) for 2018 was €56 million higher (previous year: difference of €83 million) than the expected tax expense of €591 million (previous year: €724 million) that would have resulted from applying an expected weighted average tax rate to the pre-tax income of the Covestro Group. This average rate was derived from the expected tax rates of the individual Group companies and amounted to 23.9% in 2018 (previous year: 27.2%). The effective tax rate was 26.1% (previous year: 24.1%).

The reconciliation of expected to actual income tax expense and of the expected to the effective tax rate for the Covestro Group is shown in the following table:

Reconciliation of Expected to Actual Income Tax Expense

 

 

 

 

 

 

 

 

 

 

 

2017

 

2018

 

 

€ million

 

%

 

€ million

 

%

Expected income tax expense and expected tax rate

 

724

 

+27.2

 

591

 

+23.9

Reduction in taxes due to tax-free income

 

(15)

 

–0.6

 

(21)

 

–0.8

Increase in taxes due to non-tax-deductible expenses

 

18

 

+0.7

 

58

 

+2.2

Tax income (–) and expenses (+) relating to other periods

 

(12)

 

–0.5

 

 

Tax effects of change in tax rates

 

(94)

 

–3.5

 

(1)

 

Other tax effects

 

20

 

+0.8

 

20

 

+0.8

Actual income tax expense and effective tax rate

 

641

 

+24.1

 

647

 

+26.1