Accounting policy
Income tax expense is recognized in the income statement except to the extent that it relates to an item recognized directly in Other comprehensive income or Shareholders’ equity.
Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustment to tax payable with respect to previous years. The current tax position also reflects any uncertainty related to income taxes. Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the carrying amount of assets and liabilities and their tax base. Deferred tax assets and liabilities are measured at the tax rates that have been enacted or substantially enacted at the balance sheet date, and reflect any uncertainty related to income taxes and are expected to apply when the related deferred tax assets are realized or the deferred tax liabilities are settled. Deferred tax assets, including assets arising from losses carried forward and tax credits, are reassessed over time and recognized to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences and unused tax losses can be utilized. Deferred tax assets and liabilities are stated at nominal value.
Deferred taxes are not provided for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Deferred tax assets and deferred tax liabilities are offset and presented net when there is a legally enforceable right to offset, and the assets and liabilities relate to income taxes levied by the same taxation authority.
Estimates and judgments
Key estimates for income tax generally relate to uncertain tax positions that could result from different interpretation of tax legislation by local tax authorities in the countries where dsm-firmenich operates. For the measurement of the uncertainty, dsm-firmenich uses the most likely amount or the expected value method to estimate the underlying risk. This requires judgements and final outcome may deviate from the estimates.
Income tax
The income tax benefit on continuing operations was €18 million, which represents an effective income tax rate of 2.8% (2022: tax expense of €124 million, representing an effective income tax rate of 21.0%). The amount excludes tax expense from discontinued operations of €37 million (2022: €66 million) and can be broken down as follows.
|
|
2023 |
|
2022 |
|---|---|---|---|---|
Current tax (expense)/benefit: |
|
|
|
|
- Current year |
|
(179) |
|
(121) |
- Prior-year adjustments |
|
2 |
|
16 |
- Tax credits compensated |
|
2 |
|
3 |
- Non-recoverable withholding tax |
|
(13) |
|
(5) |
Total current tax (expense)/benefit |
|
(188) |
|
(107) |
|
|
|
|
|
Deferred tax (expense)/benefit: |
|
|
|
|
- Originating from temporary differences and their reversal |
|
245 |
|
(16) |
- Prior-year adjustments |
|
3 |
|
(17) |
- Change in tax rate |
|
(10) |
|
15 |
- Changes arising from write-down of deferred tax assets |
|
(41) |
|
7 |
- Changes in previously and newly recognized tax losses and tax credits |
|
9 |
|
(6) |
Total deferred tax (expense)/benefit |
|
206 |
|
(17) |
Total tax (expense)/benefit |
|
18 |
|
(124) |
|
|
|
|
|
Of which related to: |
|
|
|
|
- Taxable result excl. APM adjustments |
|
(117) |
|
(139) |
- APM adjustments |
|
135 |
|
15 |
The relationship between the income tax rate in Switzerland and the effective tax rate on the taxable result can be explained as follows.
In % |
|
2023 |
|
2022 |
|---|---|---|---|---|
Domestic income tax rate |
|
16.3 |
|
25.8 |
|
|
|
|
|
Tax effects of: |
|
|
|
|
- Deviating rates |
|
19.3 |
|
(5.0) |
- Change in tax rates |
|
1.5 |
|
(2.1) |
- Tax-exempt income and non-deductible expense |
|
(2.5) |
|
0.6 |
- Other effects |
|
2.7 |
|
0.9 |
Effective tax rate taxable result, excl. APM adjustments |
|
37.3 |
|
20.2 |
|
|
|
|
|
APM adjustments (see Note 2) |
|
(34.5) |
|
0.8 |
Total effective tax rate |
|
2.8 |
|
21.0 |
The total effective tax rate on the taxable result in 2023 was 2.8% (2022: 21.0%), excluding APM adjustments this was 37.3% (2022: 20.2%).
In 2022 the domestic income tax rate of the Netherlands was applicable for DSM BV as parent company. As in 2023 the parent company changed to DSM-Firmenich AG, the statutory rate of Switzerland applies as of 2023.
The effective tax rate in 2023 compared to the Swiss statutory rate as well as compared to the effective tax rate prior year, was negatively impacted by the geographical spread mainly due to the lower vitamin prices and profitability, changes in tax rates under local tax law in various countries and non-deductible expenses.
The balance of the deferred tax assets and deferred tax liabilities increased by €1,142 million owing to the changes presented in the following table.
|
|
2023 |
|
2022 |
|---|---|---|---|---|
Balance at 1 January |
|
|
|
|
Deferred tax assets |
|
95 |
|
203 |
Deferred tax liabilities |
|
(476) |
|
(490) |
Total |
|
(381) |
|
(287) |
|
|
|
|
|
Changes: |
|
|
|
|
- Income tax income/(expense) in income statement |
|
193 |
|
(52) |
- Income tax: change in tax percentage |
|
- |
|
15 |
Total income statement |
|
193 |
|
(37) |
|
|
|
|
|
- Income tax expense in OCI |
|
21 |
|
(17) |
- Acquisitions and disposals |
|
(1,264) |
|
(6) |
- Exchange differences |
|
(108) |
|
(13) |
- Reclassification to held for sale |
|
16 |
|
(21) |
Balance at 31 December |
|
(1,523) |
|
(381) |
|
|
|
|
|
Of which: |
|
|
|
|
- Deferred tax assets |
|
228 |
|
95 |
- Deferred tax liabilities |
|
(1,751) |
|
(476) |
In various countries, dsm-firmenich has taken standpoints regarding its tax position which may at any time be challenged, or have already been challenged, by the tax authorities, because the authorities in question interpret the law differently. For particular tax treatments for which there exists uncertainty that they are accepted by tax authorities, dsm-firmenich either recognizes a liability or reflects the uncertainty in the recognition and measurement of its current and deferred tax assets and liabilities.
The deferred tax assets and liabilities relate to the following balance sheet items.
|
|
2023 |
|
2022 |
||||
|---|---|---|---|---|---|---|---|---|
|
|
Deferred tax assets |
|
Deferred tax liabilities |
|
Deferred tax assets |
|
Deferred tax liabilities |
Intangible assets |
|
54 |
|
(1,485) |
|
28 |
|
(368) |
Property, plant and equipment |
|
29 |
|
(279) |
|
15 |
|
(181) |
Right-of-use assets |
|
- |
|
(40) |
|
- |
|
(34) |
Financial assets |
|
59 |
|
(18) |
|
28 |
|
(25) |
Inventories |
|
82 |
|
(20) |
|
36 |
|
(46) |
Receivables |
|
11 |
|
(22) |
|
5 |
|
(22) |
Lease liabilities non-current |
|
31 |
|
- |
|
25 |
|
- |
Other non-current liabilities |
|
1 |
|
(88) |
|
1 |
|
(2) |
Non-current provisions |
|
73 |
|
(46) |
|
41 |
|
- |
Other current liabilities |
|
68 |
|
(2) |
|
66 |
|
(6) |
Lease liabilities current |
|
10 |
|
- |
|
11 |
|
- |
|
|
418 |
|
(2,000) |
|
256 |
|
(684) |
|
|
|
|
|
|
|
|
|
Tax losses carried forward |
|
59 |
|
- |
|
47 |
|
|
Set-off |
|
(249) |
|
249 |
|
(208) |
|
208 |
Total |
|
228 |
|
(1,751) |
|
95 |
|
(476) |
No deferred tax assets were recognized for loss carryforwards amounting to €566 million (2022: €153 million). Unrecognized loss carryforwards amounting to €93 million will expire in the years up to and including 2028 (2022: €54 million up to and including 2027), €1 million between 2029 and 2033 (2022: €30 million between 2028 and 2032) and the remaining €472 million in 2034 and beyond (2022: €69 million between 2033 and beyond). In addition, an amount of €9 million (2022: €17 million) of withholding taxes was unrecognized.
No deferred tax liability is recognized on temporary differences relating to unremitted retained earnings of subsidiaries as the group is able to control the timings of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable future. The amount of unremitted retained earnings on which no deferred tax liability has been provided for represents €2,253 million (2022: €857 million).
The valuation of deferred tax assets depends on the probability of the reversal of temporary differences and the utilization of tax loss carryforwards, tax credits and withholding tax. Deferred tax assets are recognized for future tax benefits arising from temporary differences and for tax loss carryforwards to the extent that the tax benefits are probable. dsm-firmenich has to assess the likelihood that deferred tax assets will be recovered from future taxable profits. Deferred tax assets are reduced if, and to the extent that, it is not probable that all or some portion of the deferred tax assets will be realized. In the event that actual future results differ from estimates, and depending on tax strategies that dsm-firmenich may be able to implement, changes to the measurement of deferred taxes could be required, which could have an impact on the company’s financial position and profit for the year.