17 Income Taxes

in € million

 

2016

 

2015

 

 

 

 

 

Current income tax

 

40.0

 

27.2

Prior-year current income tax

 

10.2

 

-5.5

Deferred tax – temporary differences

 

1,353.9

 

732.7

Deferred tax – unutilized loss carryforwards

 

-57.2

 

-14.6

 

 

1,346.9

 

739.8

The current tax expense is determined on the basis of the taxable income for the fiscal year. For the 2016 fiscal year, the combined tax rate of corporate income tax and solidarity surcharge for domestic companies is 15.8% (2015: 15.8%). Including trade tax at a rate of about 17.3% (2015: 17.3%), the combined domestic tax rate is 33.1% in 2016 (2015: 33.1%). The income generated by Vonovia Finance B.V. is subject to Dutch tax law; current taxes of € 2.0 million (2015: € 0.9 million) were incurred there. The other companies that hold properties and are based in the Netherlands and Luxembourg are subject to limited corporation tax liability in Germany. These companies, together with the Irish companies, pay insignificant minimum taxes from the Group’s perspective in the countries in which they are domiciled.

Due to the discontinuation of the extended trade tax exemption at various companies, deferred tax liabilities are also subject to trade tax, unlike in the previous year. This effect results in a deferred tax expense of € 46.7 million (2015: € 55.3 million).

For domestic deductible temporary differences (excl. loss carryforwards) in the amount of € 21.4 million (Dec. 31, 2015: € 30.8 million), no deferred corporate income taxes or deferred trade taxes were recognized, because they are not likely to be used in the future.

As of December 31, 2016, there were corporate income tax loss carryforwards amounting to € 3,636.9 million (Dec. 31, 2015: € 3,540.7 million), as well as trade tax loss carryforwards amounting to € 1,899.2 million (Dec. 31, 2015: € 1,848.3 million), for which deferred tax assets have been recognized to the extent that their realization is sufficiently probable. The increase in tax loss carryforwards resulted from current tax losses at individual companies.

No deferred taxes were recognized in the balance sheet for corporate income tax loss carryforwards amounting to € 949.8 million (Dec. 31, 2015: € 1,047.8 million). Of this amount, € 13.5 million (2015: € 119.2 million) arose for the first time in the 2016 fiscal year. Under current tax law, these loss carryforwards are not subject to restrictions either with regard to time or the amount of the loss carryforward. The fact that no deferred tax assets were recognized on the new corporate income tax loss carryforwards results in a tax effect of € 2.1 million (2015: € 18.8 million). In addition, there are further trade tax loss carryforwards subject to no restrictions with regard to how they can be carried forward in the amount of € 631.2 million in total (Dec. 31, 2015: € 678.8 million). These did not give rise to any deferred tax assets. Of this amount, € 7.1 million arose for the first time in the 2016 fiscal year (2015: € 112.0 million) and the resulting tax effect is € 1.2 million (2015: € 19.4 million).

The measurement of deferred tax assets (without impairment losses on new tax loss and interest carryforwards) led to tax income amounting to € 30.4 million in the 2016 fiscal year (2015: income amounting to € 1.7 million).

Deferred taxes on interest carryforwards are recognized if the interest carryforward is likely to be able to be used in the future. Due to the Group’s capital structure, no interest carryforwards are likely to be able to be used in the future. As a result, no deferred tax assets have been recognized on interest carryforwards in the amount of € 557.5 million (Dec. 31, 2015: € 382.7 million). In the 2016 fiscal year, non-deductible interest at individual companies increased the interest carryforward by € 179.3 million (2015: € 174.4 million). The fact that no deferred tax assets were recognized on the new interest carryforward generated a tax effect of € 59.4 million (2015: € 56.9 million).

A reconciliation between actual income taxes and expected tax expense, which is the product of the accounting profit for the period multiplied by the average tax rate applicable in Germany, is shown in the table below.

in € million

 

2016

 

2015

 

 

 

 

 

Earnings before tax

 

3,859.8

 

1,734.5

Income tax rate in %

 

33.1

 

33.1

Expected tax expense

 

1,277.6

 

574.1

 

 

 

 

 

Trade tax effects

 

42.7

 

62.8

Non-deductible operating expenses thereof losses from merger and accrual not taken into account for tax purposes: € 40.2 million (2015: € 5.0 million)

 

43.2

 

7.5

Tax-free income

 

-1.0

 

-0.5

Change in the deferred tax assets on loss carryforwards and temporary differences

 

-30.4

 

-1.7

New loss and interest carryforwards not recognized

 

62.7

 

95.1

Prior year current income tax and taxes on guaranteed dividends

 

13.7

 

1.3

Differing foreign tax rates

 

-54.0

 

-1.7

Other tax effects (net)

 

-7.6

 

2.9

Effective income taxes

 

1,346.9

 

739.8

Effective income tax rate in %

 

34.9

 

42.7

The deferred taxes refer to temporary differences in balance sheet items and unutilized loss carryforwards as follows:

in € million

 

Dec. 31, 2016

 

Dec. 31, 2015

 

 

 

 

 

Intangible assets

 

 

0.6

Investment properties

 

1.2

 

3.5

Assets held for sale

 

0.1

 

0.1

Property, plant and equipment

 

0.2

 

0.3

Financial assets

 

3.6

 

3.2

Other assets

 

52.5

 

58.4

Provisions for pensions

 

86.7

 

75.5

Other provisions

 

13.5

 

50.6

Liabilities

 

94.1

 

82.2

Loss carryforwards

 

641.9

 

584.7

Deferred tax assets

 

893.8

 

859.1

in € million

 

Dec. 31, 2016

 

Dec. 31, 2015

 

 

 

 

 

Intangible assets

 

3.4

 

0.9

Investment properties

 

4,541.7

 

3,089.5

Assets held for sale

 

9.7

 

154.8

Property, plant and equipment

 

7.8

 

3.5

Financial assets

 

5.0

 

5.4

Other assets

 

7.0

 

11.6

Other provisions

 

31.5

 

21.8

Liabilities

 

37.6

 

27.6

Deferred tax liabilities

 

4,643.7

 

3,315.1

Excess deferred tax liabilities

 

3,749.9

 

2,456.0

Deferred tax assets and liabilities are netted against each other when the same company and the same tax authority are involved and the realization period is the same. As a result, the following deferred tax assets and liabilities are stated:

in € million

 

Dec. 31, 2016

 

Dec. 31, 2015

 

 

 

 

 

Deferred tax assets

 

19.6

 

72.3

Deferred tax liabilities

 

3,769.5

 

2,528.3

Excess deferred tax liabilities

 

3,749.9

 

2,456.0

The change in deferred taxes is as follows:

in € million

 

2016

 

2015

 

 

 

 

 

Excess deferred tax liabilities as of Jan. 1

 

2,456.0

 

1,117.8

Deferred tax expense in income statement

 

1,296.7

 

718.1

Deferred tax due to first-time consolidation

 

1.8

 

620.5

Change recognized in other comprehensive income in deferred taxes on available-for-sale financial assets

 

1.5

 

0.2

Change recognized in other comprehensive income in deferred taxes on actuarial gains and losses from pensions and similar obligations

 

-10.6

 

10.9

Change recognized in other comprehensive income in deferred taxes on derivative financial instruments regarding liabilities

 

5.7

 

3.8

Deferred taxes recognized in equity on accrued capital procurement costs resulting from the issuance of a hybrid bond with an indefinite term

 

-0.4

 

Deferred taxes recognized in the capital reserve on capital procurement costs of capital increases

 

-0.8

 

-15.3

Excess deferred tax liabilities as of Dec. 31

 

3,749.9

 

2,456.0

No deferred tax liabilities are recognized for profits accumulated at subsidiaries of € 10,505.9 million (Dec. 31, 2015: € 7,579.4 million), as these profits are to remain invested for an indefinite period or are not subject to taxation. In the event of distribution or disposal of the subsidiaries, 5% of the distributed amounts or the capital gains would be subject to German taxation so that there would normally be an additional tax obligation. Determination of the potential tax effects was dispensed with in view of the disproportionately high cost.