19 Income Taxes

The current tax expense is determined on the basis of the taxable income for the fiscal year. For the 2018 fiscal year, the combined tax rate of corporate income tax and solidarity surcharge for domestic companies is 15.8% (2017: 15.8%). Including trade tax at a rate of about 17.3% (2017: 17.3%), the combined domestic tax rate is 33.1% in 2018 (2017: 33.1%). The corporate income tax rate for the companies based in Austria is 25.0% (2017: 25.0%), while the rate for companies based in Sweden is 22.0%. The income generated by Vonovia Finance B.V. is subject to Dutch tax law; current taxes of € 3.1 million were incurred there (2017: € 2.3 million). The other companies that hold properties and are based in the Netherlands have limited corporation tax liability in Germany. These companies, together with the other foreign companies, pay tax that is of a negligible amount from the Group’s perspective in the countries in which they are domiciled.

Anticipated effects of the so-called extended trade tax exemption on trade tax are taken into account when the deferred taxes are determined. Due to the discontinuation of the extended trade tax exemption due to sales, triggering commercial real estate trading at four BUWOG companies, deferred tax liabilities are also subject to trade tax there, unlike in the previous year. This effect causes a deferred tax expense of € 29.5 million.

For domestic deductible temporary differences (excl. loss carryforwards) in the amount of € 15.2 million (Dec. 31, 2017: € 18.4 million), no deferred corporate income taxes or deferred trade taxes were recognized, because they are not likely to be used in the future. For Austrian and Swedish deductible differences (excl. loss carryforwards) in the amount of € 0.0 million (Dec. 31, 2017: € 15.8 million), no deferred corporate income taxes were recognized as a result.

As of December 31, 2018, there were domestic corporate income tax loss carryforwards amounting to € 3,949.5 million (Dec. 31, 2017: € 3,840.8 million), as well as trade tax loss carryforwards amounting to € 2,122.5 million (Dec. 31, 2017: € 2,040.1 million), for which deferred tax assets have been recognized to the extent that their realization is sufficiently probable. As of December 31, 2018, there were corporate income tax loss carryforwards in Austria and Sweden amounting to € 245.0 million (Dec. 31, 2017: € 165.4 million) and € 108.1 million (Dec. 31, 2017: € 0.0 million) respectively for which deferred tax assets have also 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 and from the business combinations with the BUWOG and the Victoria Park Group.

No deferred taxes were recognized in the balance sheet for domestic and foreign corporate income tax loss carryforwards amounting to € 1,010.1 million (Dec. 31, 2017: € 968.4 million). Of this amount, € 30.6 million arose for the first time in the 2018 fiscal year (2017: € 29.0 million). 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 € 5.4 million (2017: € 4.6 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 € 660.6 million in total (Dec. 31, 2017: € 623.2 million). These did not give rise to any deferred tax assets. Of this amount, € 29.4 million arose for the first time in the 2018 fiscal year (2017: € 25.0 million) and the resulting tax effect is € 4.6 million (2017: € 4.3 million).

The remeasurement of deferred tax assets on temporary differences and loss carryforwards from the previous year led to tax income amounting to € 10.0 million in the 2018 fiscal year (2017: € 27.7 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 € 820.2 million (Dec. 31, 2017: € 675.5 million). In the 2018 fiscal year, non-deductible interest increased the interest carryforward by € 144.7 million (2017: € 104.6 million). The fact that no deferred tax assets were recognized on the new interest carryforward generated a tax effect of € 47.9 million (2017: € 34.6 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.

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

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:

The increase in deferred tax assets is mainly due to deferred taxes on loss carryforwards of the Swedish companies that were not netted, while the increase in deferred tax liabilities is primarily attributable to investment properties.

The change in deferred taxes is as follows:

No deferred tax liabilities are recognized for profits accumulated at subsidiaries of € 22,416.7 million (Dec. 31, 2017: € 15,108.4 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.