14. Taxes

The breakdown of tax expenses by origin was as follows:

Tax Expense by Origin

 

 

2014

 

2015

 

 

 

Of which income taxes

 

 

Of which income taxes

 

 

€ million

€ million

 

€ million

€ million

2014 figures restated

Taxes paid or accrued

 

 

 

 

 

 

Income taxes

 

 

 

 

 

 

Germany

 

(566)

 

 

(1,140)

 

other countries

 

(739)

 

 

(1,118)

 

Other taxes

 

 

 

 

 

 

Germany

 

(48)

 

 

(44)

 

other countries

 

(189)

 

 

(220)

 

 

 

(1,542)

(1,305)

 

(2,522)

(2,258)

Deferred taxes

 

 

 

 

 

 

from temporary differences

 

164

 

 

1,056

 

from tax loss carryforwards and tax credits

 

70

 

 

(25)

 

 

 

234

234

 

1,031

1,031

 

 

 

 

 

 

 

Total

 

(1,308)

(1,071)

 

(1,491)

(1,227)

The other taxes mainly include land, vehicle and other indirect taxes. They are reflected in the respective functional cost items.

The deferred tax assets and liabilities were allocable to the following items in the statement of financial position:

Deferred Tax Assets and Liabilities

 

 

Dec. 31, 2014

 

Dec. 31, 2015

 

 

Deferred tax assets

Deferred tax liabilities

 

Deferred tax assets

Deferred tax liabilities

 

 

€ million

€ million

 

€ million

€ million

2014 figures restated

Intangible assets

 

1,586

2,520

 

1,411

1,910

Property, plant and equipment

 

86

672

 

253

678

Financial assets

 

57

207

 

18

183

Inventories

 

652

50

 

943

63

Receivables

 

286

627

 

98

580

Other assets

 

24

13

 

28

14

Provisions for pensions and other post-employment benefits

 

3,508

1,037

 

3,601

1,213

Other provisions

 

976

129

 

1,025

90

Liabilities

 

674

71

 

714

91

Tax loss carryforwards

 

446

 

393

Tax credits

 

144

 

191

 

 

8,439

5,326

 

8,675

4,822

of which noncurrent

 

7,182

4,912

 

7,398

4,750

Set-off

 

(4,637)

(4,637)

 

(3,996)

(3,996)

Total

 

3,802

689

 

4,679

826

Deferred taxes on remeasurements, recognized outside profit or loss, of the net liability for defined benefit pension and other post-employment benefits diminished equity by €430 million (2014: increased equity by €1,621 million). Deferred taxes on changes, recognized outside profit or loss, in fair values of available-for-sale financial assets and derivatives designated as Cash flow Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. hedges diminished equity by €27 million (2014: increased equity by €55 million). These effects on equity are reported in the statement of comprehensive income.

The use of tax loss carryforwards reduced the income taxes paid or accrued in 2015 by €136 million (2014: €24 million). The use of tax credits reduced income taxes paid or accrued by €21 million (2014: €10 million).

Of the total tax loss carryforwards of €5,497 million in 2015 (2014: €4,535 million), an amount of €1,812 million (2014: €1,737 million) is expected to be usable within a reasonable period. The increase in loss carryforwards was mainly due to losses that newly arose in 2015 and tax reassessments for prior years. Deferred tax assets of €393 million (2014: €446 million) were recognized for the amount of loss carryforwards expected to be usable. The deferred tax assets included an amount of €0 million (2014: €39 million) that resulted from purchase price allocations and was recognized outside profit or loss.

The use of €3,685 million (2014: €2,798 million) of tax loss carryforwards was subject to legal or economic restrictions. Consequently, no deferred tax assets were recognized for this amount. If these tax loss carryforwards had been fully usable, deferred tax assets of €322 million (2014: €138 million) would have been recognized.

Tax credits of €191 million were recognized in 2015 (2014: €144 million) as deferred tax assets, including €0 million (2014: €0 million) outside profit or loss. The use of €41 million (2014: €45 million) of tax credits was subject to legal or economic restrictions. Consequently, no deferred tax assets were recognized for this amount.

Unusable tax credits and tax loss carryforwards will expire as follows:

Expiration of Unusable Tax Credits and Tax Loss Carryforwards

 

 

Tax credits

 

Tax loss carryforwards

 

 

Dec. 31, 2014

Dec. 31, 2015

 

Dec. 31, 2014

Dec. 31, 2015

 

 

€ million

€ million

 

€ million

€ million

Within one year

 

4

4

 

14

17

Within two years

 

 

9

70

Within three years

 

3

4

 

3

25

Within four years

 

 

24

32

Within five years

 

23

26

 

82

234

Thereafter

 

15

6

 

2,666

3,307

Total

 

45

40

 

2,798

3,685

In 2015, subsidiaries that reported losses for 2015 or 2014 recognized net deferred tax assets totaling €2,455 million (2014: €2,117 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.

Deferred tax liabilities of €35 million were recognized in 2015 (2014: €6 million) for planned dividend payments by subsidiaries. Deferred tax liabilities were not recognized for temporary differences on €12,087 million (2014: €8,648 million) of retained earnings of subsidiaries because these earnings are to be reinvested for an indefinite period.

The reported tax expense of €1,227 million for 2015 (2014: €1,071 million) differed by €119 million (2014: €58 million) from the expected tax expense of €1,346 million (2014: €1,129 million) that would have resulted from applying an expected weighted average tax rate to the pre-tax income of the Group. This average rate, derived from the expected tax rates of the individual Group companies, was 25.7% in 2015 (2014: 25.6%). The effective tax rate was 23.4% (2014: 24.3%).

The reconciliation of expected to reported income tax expense and of the expected to the effective tax rate for the Group was as follows:

Reconciliation of Expected to Actual Income Tax Expense

 

 

2014

 

2015

 

 

€ million

%

 

€ million

%

Expected income tax expense and expected tax rate

 

1,129

25.6

 

1,346

25.7

2014 figures restated

 

 

 

 

 

 

 

Reduction in taxes due to tax-free income

 

 

 

 

 

 

Income related to the operating business

 

(92)

(2.1)

 

(155)

(3.0)

Income from affiliated companies and divestiture proceeds

 

(2)

 

(10)

(0.2)

 

 

 

 

 

 

 

First-time recognition of previously unrecognized deferred tax assets on tax loss carryforwards

 

(15)

(0.3)

 

(30)

(0.6)

Use of tax loss carryforwards on which deferred tax assets were not previously recognized

 

(1)

 

(6)

(0.1)

 

 

 

 

 

 

 

Increase in taxes due to non-tax-deductible expenses

 

 

 

 

 

 

Expenses related to the operating business

 

149

3.4

 

148

2.8

Impairment losses on investments in affiliated companies

 

2

 

7

0.1

 

 

 

 

 

 

 

New tax loss carryforwards unlikely to be usable

 

57

1.3

 

81

1.5

Existing tax loss carryforwards on which deferred tax assets were previously recognized but which are unlikely to be usable

 

7

0.2

 

16

0.3

 

 

 

 

 

 

 

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

 

(119)

(2.7)

 

(95)

(1.8)

Tax effects of changes in tax rates

 

(10)

(0.2)

 

(25)

(0.5)

Other tax effects

 

(34)

(0.9)

 

(50)

(0.8)

 

 

 

 

 

 

 

Actual income tax expense and effective tax rate

 

1,071

24.3

 

1,227

23.4