Note 7: Income tax

Pre-tax income from continuing operations amounted to a profit of €764 million (2016: €850 million). The net tax charges related to continuing operations are included in the statement of income as follows:

Classification of current and deferred tax result

In € millions

2016*

2017

*

Represented to present the Specialty Chemicals business as discontinued operations.

 

 

 

Current tax expense for

 

 

The year

(160)

(158)

Adjustments for previous years

12

56

Separation of Specialty Chemicals business

(1)

Total current tax expense

(148)

(103)

 

 

 

Deferred tax expense for

 

 

US tax reform

(56)

Separation of Specialty Chemicals business

(32)

Origination and reversal of temporary differences and tax losses

(72)

(44)

(De)recognition of deferred tax assets

(17)

(12)

Changes in tax rates (excluding US tax reform)

3

(6)

Total deferred tax expense

(86)

(150)

Total

(234)

(253)

The total deferred tax charge, including discontinued operations was €182 million (2016: €120 million). The total tax charge, including discontinued operations, was €422 million (2016: €393 million).

Effective tax rate reconciliation

The effective income tax rate based on the statement of income is 33.1 percent.

Effective tax rate

in %

2016*

2017

*

Represented to present the Specialty Chemicals business as discontinued operations.

Corporate tax rate in the Netherlands

25.0

25.0

Effect of tax rates in other countries

(2.0)

(1.0)

Weighted average statutory income tax rate

23.0

24.0

US tax reform

7.3

Separation of Specialty Chemicals business

4.2

Non-taxable (income)/expenses

2.2

0.7

(De)recognition of deferred tax assets

2.0

1.6

Non-refundable withholding taxes

2.1

1.8

Adjustment for prior years

(1.4)

(7.3)

Other

(0.4)

0.8

Effective tax rate

27.5

33.1

The impact of non-refundable withholding tax on the tax rate is dependent on our relative share in the profit of subsidiaries in countries that levy withholding tax on dividends and on the timing of the remittance of such dividends. Based on the Dutch tax system there is a limited credit for such taxes.

Deferred tax assets and liabilities

From the total amount of recognized net deferred tax assets, €280 million (2016: €321 million) is related to entities that have suffered a loss in either 2017 or 2016 and where utilization is dependent on future taxable profit in excess of the charges arising from the reversal of existing taxable temporary differences. For these entities, net deferred tax assets were recognized based on management’s long-term projections and tax planning strategies.

The usage of the tax loss carryforwards recognized in the balance sheet will affect the cash tax rate in coming years.

A deferred tax liability is recognized for taxable temporary differences related to investments in subsidiaries, branches and associates and interests in joint ventures, to the extent that it is probable that these will reverse in the foreseeable future and in sofar the company is in control of dividend distribution. The expected net tax impact of the remaining differences for which no deferred tax liabilities have been recognized is €30 million.

Deferred tax assets and liabilities

In € millions

2016

2017

Deferred tax assets

1,057

1,017

Deferred tax liabilities

(360)

(367)

Balance at January 1

697

650

 

 

 

Movement in deferred tax:

 

 

Changes in exchange rates

(21)

(19)

Recognized in income

(120)

(182)

Recognized in equity/Other comprehensive income

106

(105)

Classified as held for sale

(52)

Other

(12)

(2)

Balance at December 31

650

290

Deferred tax assets

1,017

575

Deferred tax liabilities

(367)

(285)

Unrecognized deferred tax assets

In € millions

2016

2017

Tax losses and tax credits

172

193

Deductible temporary differences

203

171

Total

375

364

Expiration year of loss carryforwards

In € millions

2018

2019

2020

2021

2022

Later

Unlimited

Total

Total loss carryforwards

4

1

7

3

25

416

2,650

3,106

Loss carryforwards not recognized in deferred tax assets

(7)

(3)

(4)

(33)

(133)

(180)

Total recognized

4

1

21

383

2,517

2,926

Deferred tax assets and liabilities per balance sheet item

 

December 31, 2016

December 31, 2017

In € millions

Net balance

Assets

Liabilities

Net balance

Assets

Liabilities

Intangible assets

(358)

66

424

(368)

17

385

Property, plant and equipment

(45)

75

120

43

69

26

Post-retirement benefit provisions

309

313

4

177

179

2

Other provisions

107

208

101

47

59

12

Other items and tax credits

310

375

65

162

248

86

Tax loss carryforwards

702

702

593

593

Deferred tax assets not recognized

(375)

(375)

(364)

(364)

Tax assets/liabilities

650

1,364

714

290

801

511

Set-off of tax

(347)

(347)

(226)

(226)

Net deferred taxes

650

1,017

367

290

575

285

The income tax recognized in equity in 2017 includes the impact of derecognition of certain post-retirement benefits related deferred tax assets.

The income recognized in equity in 2016 includes the positive impact of the re-recognition of certain post-retirement benefits related deferred tax assets.

Income tax recognized in equity

In € millions

2016

2017

Currency exchange differences on intercompany loans of a permanent nature

(29)

(5)

Cash flow hedges

(14)

(4)

Share-based compensation

(3)

3

Post-retirements benefits

151

(99)

Total

105

(105)

Current tax

(1)

Deferred tax

106

(105)

Total

105

(105)