22 Income Taxes
Accounting Policies
Income taxes for the current and prior fiscal years are recognized as current income tax liabilities to the extent that they have not yet been paid.
Deferred tax assets and liabilities are recognized using the liability method under the temporary concept, providing for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax assets are only recognized for temporary differences and on loss carryforwards to the extent that there are deferred tax liabilities that can be netted against them – regarding deferred tax assets on loss carryforwards taking the minimum taxation into account – or, based on the predictable profits in the foreseeable future, it can be verified that they will be realized.
Deferred tax assets and liabilities are not recognized where the temporary difference arises from initial recognition of goodwill in connection with a business combination or the initial recognition (other than a business combination) of other assets and liabilities in a transaction that neither affects taxable income nor net income.
The carrying amount of a deferred tax asset is reviewed at each reporting date. If necessary, the carrying amount of the deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable profit will be available in the future.
Deferred taxes are measured at the tax rates that apply, or are expected to apply, to the period when the tax asset is realized or the liability is settled based on the current legislation in the countries in question. As in 2018, the combined tax rate of corporate income tax and trade tax of 33.1% was used to calculate domestic deferred taxes for 2019. The corporate income tax rate for the companies based in Austria is 25.0%, while the rate for companies based in Sweden is 20.6%.
Deferred tax assets and liabilities are offset against each other only if Vonovia has a legally enforceable right to set off the recognized amounts, when the same tax authority is involved and when the realization period is the same. In accordance with the regulations of IAS 12 “Income Taxes,” deferred tax assets and liabilities are not discounted.
in € million |
2018 |
2019 |
|---|---|---|
|
|
|
Current income tax |
75.1 |
55.2 |
Prior-year current income tax |
-15.2 |
1.6 |
Deferred tax – temporary differences |
1,436.8 |
1,861.0 |
Deferred tax – unutilized loss carryforwards |
-25.2 |
-73.2 |
|
1,471.5 |
1,844.6 |
|
|
|
The current tax expense is determined on the basis of the taxable income for the fiscal year. For the 2019 fiscal year, the combined tax rate of corporate income tax and solidarity surcharge for domestic companies is 15.8% (2018: 15.8%). Including trade tax at a rate of about 17.3% (2018: 17.3%), the combined domestic tax rate is 33.1% in 2019 (2018: 33.1%). The corporate income tax rate for the companies based in Austria is 25.0% (2018: 25.0%), while the rate for companies based in Sweden is 21.4% (2018: 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 (2018: € 3.1 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 at a series of BUWOG companies, deferred tax liabilities are also subject to trade tax there, unlike in the previous year. This effect creates a deferred tax expense of € 191.0 million (2018: € 29.5 million).
For deductible temporary differences (excl. loss carryforwards) in the amount of € 16.9 million (Dec. 31, 2018: € 15.2 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, 2019, there were corporate income tax loss carryforwards amounting to € 4,040.4 million (Dec. 31, 2018: € 3,949.5 million), as well as trade tax loss carryforwards amounting to € 2,242.8 million (Dec. 31, 2018: € 2,122.5 million), for which deferred tax assets have been recognized to the extent that their realization is sufficiently probable. As of December 31, 2019, there were corporate income tax loss carryforwards abroad amounting to € 690.9 million (Dec. 31, 2018: € 353.1 million), as well as trade tax loss carryforwards amounting to € 15.4 million (2018: € 14.4 million), 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 combination with the Hembla Group.
No deferred taxes were recognized in the balance sheet for domestic and foreign corporate income tax loss carryforwards amounting to € 880.3 million (Dec. 31, 2018: € 1,010.1 million). Of this amount, € 20.0 million arose for the first time in the 2019 fiscal year (2018: € 30.6 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 € 3.6 million (2018: € 5.4 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 € 559.9 million in total (Dec. 31, 2018: € 660.6 million). These did not give rise to any deferred tax assets. Of this amount, € 12.2 million arose for the first time in the 2019 fiscal year (2018: € 29.4 million) and the resulting tax effect is € 2.0 million (2018: € 4.6 million).
The remeasurement of deferred tax assets on temporary differences and loss carryforwards from the previous year led to tax income amounting to € 22.6 million in the 2019 fiscal year (2018: € 10.0 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 € 919.9 million (Dec. 31, 2018: € 820.2 million). Of this amount, € 150.7 million (2018: € 144.7 million) arose for the first time in the 2019 fiscal year. The fact that no deferred tax assets were recognized on the new interest carryforward generated a tax effect of € 50.0 million in Germany (2018: € 47.9 million). Sweden has a regulation similar to the German interest threshold since 2019. As a result, no deferred tax assets have been recognized on interest carryforwards in the amount of € 47.6 million in Sweden. € 20.6 million of this amount arose for the first time in the 2019 fiscal year due to the Hembla Group only being included in November and December 2019. The fact that no deferred taxes were recognized generated a tax effect of € 4.2 million in Sweden.
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 |
2018 |
2019 |
|---|---|---|
|
|
|
Earnings before tax |
3,874.4 |
3,138.9 |
Income tax rate in % |
33.1 |
33.1 |
Expected tax expense |
1,282.4 |
1,039.0 |
|
|
|
Trade tax effects |
-7.6 |
161.6 |
Non-deductible operating expenses |
18.4 |
55.8 |
Tax-free income |
-19.8 |
-49.4 |
Change in the deferred tax assets on loss carryforwards and temporary differences |
-10.0 |
-22.6 |
New loss and interest carryforwards not recognized |
57.8 |
59.8 |
Prior year income tax and taxes on guaranteed dividends |
-10.8 |
-22.8 |
Tax effect goodwill impairment |
225.5 |
697.3 |
Differing foreign tax rates |
-30.8 |
-68.1 |
Other tax effects (net) |
-33.6 |
-6.0 |
Effective income taxes |
1,471.5 |
1,844.6 |
Effective income tax rate in % |
38.0 |
58.8 |
|
|
|
The deferred taxes refer to temporary differences in balance sheet items and unutilized loss carryforwards as follows:
in € million |
Dec. 31, 2018 |
Dec. 31, 2019 |
|---|---|---|
|
|
|
Intangible assets |
3.6 |
6.5 |
Investment properties |
4.3 |
1.8 |
Assets held for sale |
0.6 |
– |
Property, plant and equipment |
1.3 |
35.7 |
Financial assets |
8.7 |
1.3 |
Other assets |
89.0 |
101.2 |
Provisions for pensions |
82.6 |
99.6 |
Other provisions |
17.5 |
23.5 |
Liabilities |
183.1 |
134.0 |
Loss carryforwards |
789.5 |
929.7 |
Deferred tax assets |
1,180.2 |
1,333.3 |
|
|
|
in € million |
Dec. 31, 2018 |
Dec. 31, 2019 |
|---|---|---|
|
|
|
Intangible assets |
22.4 |
19.4 |
Investment properties |
8,165.1 |
10,290.7 |
Assets held for sale |
16.2 |
21.4 |
Property, plant and equipment |
11.1 |
8.5 |
Financial assets |
– |
0.8 |
Other assets |
41.2 |
118.9 |
Other provisions |
54.9 |
78.4 |
Liabilities |
47.1 |
8.0 |
Deferred tax liabilities |
8,358.0 |
10,546.1 |
Excess deferred tax liabilities |
7,177.8 |
9,212.8 |
|
|
|
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, 2018 |
Dec. 31, 2019 |
|---|---|---|
|
|
|
Deferred tax assets |
54.1 |
59.3 |
Deferred tax liabilities |
7,231.9 |
9,272.1 |
Excess deferred tax liabilities |
7,177.8 |
9,212.8 |
|
|
|
The increase in deferred tax liabilities can be attributed primarily to investment properties.
The change in deferred taxes is as follows:
in € million |
2018 |
2019 |
|---|---|---|
|
|
|
Excess deferred tax liabilities as of Jan. 1 |
5,312.3 |
7,177.8 |
Deferred tax expense in income statement |
1,411.7 |
1,787.7 |
Deferred tax due to first-time consolidation and deconsolidation |
459.0 |
278.3 |
Change recognized in other comprehensive income in deferred taxes due to equity instruments measured at fair value |
0.9 |
-4.3 |
Change recognized in other comprehensive income in deferred taxes on actuarial gains and losses from pensions and similar obligations |
-2.7 |
-17.5 |
Change recognized in other comprehensive income in deferred taxes on derivative financial instruments |
-2.0 |
0.7 |
Deferred taxes recognized in equity on accrued capital procurement costs resulting from the issuance of a hybrid bond with an indefinite term |
-0.5 |
-0.2 |
Deferred taxes recognized in the capital reserve on capital procurement costs of capital increases |
-3.6 |
-2.2 |
Currency translation |
2.4 |
3.2 |
Transition to IFRS 16 |
– |
-10.9 |
Other |
0.3 |
0.2 |
Excess deferred tax liabilities as of Dec. 31 |
7,177.8 |
9,212.8 |
|
|
|
No deferred tax liabilities are recognized for profits accumulated at subsidiaries of € 27,785.0 million (Dec. 31, 2018: € 22,416.7 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.