Notes to the Consolidated Financial Statements of the Covestro Group – Notes to the Income Statement

11. Taxes

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

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

No deferred tax assets were recognized for tax deductible temporary differences in the amount of €850 million (previous year: €0 million) as it is unlikely that these can be utilized within a foreseeable period.

Of the total tax loss and interest carryforwards of €1,494 million (previous year: €482 million), an amount of €292 million (previous year: €353 million) is expected to be usable within a foreseeable period. The increase in loss carryforwards was due to additional loss carryforwards in the reporting year and tax reassessments for prior years. Deferred tax assets of €48 million (previous year: €52 million) were recognized for the amount of tax loss and interest carryforwards expected to be usable.

The use of €1,202 million (previous year: €129 million) of existing tax loss and interest carryforwards was subject to legal or economic restrictions.

In the reporting year, tax credits of €2 million (previous year: €2 million) were recognized.

In fiscal 2022, subsidiaries that reported losses for the reporting year or the previous year recognized net deferred tax assets totaling €62 million (previous year: €506 million) from temporary differences and tax loss carryforwards. Of this amount, €30 million (previous year: €27 million) was attributable to net deferred tax assets from tax loss and interest carryforwards. All of the deferred tax assets were considered to be unimpaired because the companies concerned were expected to generate taxable income and tax strategies ensure that the deferred tax assets will be utilized.

Deferred tax liabilities of €74 million (previous year: €13 million) were recognized in the reporting year for planned dividend payments by subsidiaries. No deferred tax liabilities were recognized for temporary differences of €120 million (previous year: €128 million) relating to shares in subsidiaries, as the parent company can control the timing of the reversal of the temporary differences, and it is unlikely that these temporary differences will reverse in the foreseeable future.

The reported tax expense of €411 million (previous year: €566 million) for fiscal 2022 was €399 million higher (previous year: €59 million higher) than the expected tax expense of €12 million (previous year: €507 million) that would have resulted from applying an expected weighted average tax rate to the pre-tax income of the Covestro Group. This average tax rate was derived from the nominal tax rates of the individual Group companies and amounted to 9.2% in fiscal 2022 (previous year: 23.2%). The effective tax rate was 316.2% (previous year: 25.9%).

The Covestro Group operates in various countries. The tax rates ranged from 14.1% to 34.0% (previous year: 14.1% to 34.3%) due to national regulations.

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:

Other tax effects are primarily the result of ineligible foreign withholding taxes on the dividend payments of subsidiaries totaling €55 million (previous year: €14 million) and of the change in deferred tax liabilities on planned dividend payments by subsidiaries in the amount of €61 million (previous year: €5 million).