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, plus 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 expense on continuing operations was €147 million, which represents an effective income tax rate of 34.4% (2023: tax benefit of €18 million, representing an effective income tax rate of 2.8%). The breakdown of the income tax expense is shown in the table below.
Pillar Two legislation has been enacted in a number of jurisdictions in which dsm-firmenich operates. dsm-firmenich applies the temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax and accounts for it as a current tax when it is incurred.
The income tax expense relating to Pillar Two legislation was less than € 1 million in 2024 because of a combination of the geographical spread of the business results and the Pillar Two legislation in Switzerland, which was limited to the domestic top-up tax in 2024. As Pillar Two legislation was not yet enacted in the countries in which dsm-firmenich operated in 2023, there was no income tax expense relating to Pillar Two in that year.
The total effective tax rate on the taxable result in 2024 was 34.4% (2023: 2.8%). Excluding APM adjustments, this was 24.1% (2023: 37.3%).
The effective tax rate in 2024 (both including and excluding APM adjustments) compared to the Swiss statutory rate was negatively impacted by the geographical spread, changes in tax rates under local tax law in various countries, and non-deductible expenses. The effective tax rate in 2024 excluding APM adjustments compared to previous year was positively impacted because of the strong improvement of the financial results. The effective tax rate including APM adjustments is primarily affected by three elements, being our financial results, the spread of these result across the countries where dsm-firmenich operates and non-deductible items. In 2023, the negative profit before tax including APM adjustments in conjunction with the other two elements led to a lower effective tax rate. Conversely, in 2024, the positive profit before tax, combined with mainly the geographic spread of the results and the non-deductible items, causes an increase of the higher effective tax rate.
|
|
2024 |
|
2023 |
|---|---|---|---|---|
Current tax (expense)/benefit: |
|
|
|
|
- Current year |
|
(343) |
|
(179) |
- Prior-year adjustments |
|
7 |
|
2 |
- Tax credits compensated |
|
13 |
|
2 |
- Non-recoverable withholding tax |
|
(1) |
|
(13) |
Total current tax (expense)/benefit |
|
(324) |
|
(188) |
|
|
|
|
|
Deferred tax (expense)/benefit: |
|
|
|
|
- Originating from temporary differences and their reversal |
|
162 |
|
245 |
- Prior-year adjustments |
|
3 |
|
3 |
- Change in tax rate |
|
3 |
|
(10) |
- Changes arising from write-down of deferred tax assets |
|
(4) |
|
(41) |
- Changes in previously and newly recognized tax losses and tax credits |
|
13 |
|
9 |
Total deferred tax (expense)/benefit |
|
177 |
|
206 |
Total tax (expense)/benefit |
|
(147) |
|
18 |
|
|
|
|
|
Of which related to: |
|
|
|
|
- Taxable result excl. APM adjustments |
|
(192) |
|
(117) |
- APM adjustments |
|
45 |
|
135 |
The relationship between the income tax rate in Switzerland and the effective tax rate on the taxable result can be explained as follows.
In % |
|
2024 |
|
2023 |
|---|---|---|---|---|
Domestic income tax rate |
|
15.1 |
|
16.3 |
|
|
|
|
|
Tax effects of: |
|
|
|
|
- Deviating rates |
|
9.8 |
|
19.3 |
- Change in tax rates |
|
0.5 |
|
1.5 |
- Tax-exempt income and non-deductible expense |
|
(1.6) |
|
(2.5) |
- Other effects |
|
0.3 |
|
2.7 |
Effective tax rate taxable result, excl. APM adjustments |
|
24.1 |
|
37.3 |
|
|
|
|
|
APM adjustments (see Note 2) |
|
10.3 |
|
(34.5) |
Total effective tax rate |
|
34.4 |
|
2.8 |
Deferred tax assets and liabilities
The balance of the deferred tax assets and deferred tax liabilities decreased by €267 million owing to the changes presented in the table below.
|
|
2024 |
|
2023 |
|---|---|---|---|---|
Balance at 1 January |
|
|
|
|
Deferred tax assets |
|
228 |
|
95 |
Deferred tax liabilities |
|
(1,751) |
|
(476) |
Total |
|
(1,523) |
|
(381) |
|
|
|
|
|
Changes: |
|
|
|
|
- Income tax income/(expense) in income statement |
|
177 |
|
193 |
- Income tax: change in tax percentage |
|
– |
|
– |
Total income statement |
|
177 |
|
193 |
|
|
|
|
|
- Income tax expense in OCI |
|
2 |
|
21 |
- Acquisitions and disposals |
|
2 |
|
(1,264) |
- Transfers |
|
71 |
|
– |
- Exchange differences |
|
14 |
|
(108) |
- Reclassification to held for sale |
|
– |
|
16 |
Balance at 31 December |
|
(1,257) |
|
(1,523) |
|
|
|
|
|
Of which: |
|
|
|
|
- Deferred tax assets |
|
299 |
|
228 |
- Deferred tax liabilities |
|
(1,556) |
|
(1,751) |
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. In 2024 the recognized liabilities for uncertainties were reclassed from deferred tax liability to current tax liability as a result of a change of dsm-firmenich’s interpretation of the guidance on the presentation of these uncertainties.
The deferred tax assets and liabilities relating to the balance sheet items are shown in the table below.
|
|
2024 |
|
2023 |
||||
|---|---|---|---|---|---|---|---|---|
|
|
Deferred tax assets |
|
Deferred tax liabilities |
|
Deferred tax assets |
|
Deferred tax liabilities |
Intangible assets |
|
60 |
|
(1,357) |
|
54 |
|
(1,485) |
Property, plant and equipment |
|
31 |
|
(283) |
|
29 |
|
(279) |
Right-of-use assets |
|
1 |
|
(71) |
|
– |
|
(40) |
Financial assets |
|
41 |
|
(11) |
|
59 |
|
(18) |
Inventories |
|
122 |
|
(24) |
|
82 |
|
(20) |
Receivables |
|
15 |
|
(25) |
|
11 |
|
(22) |
Lease liabilities non-current |
|
61 |
|
– |
|
31 |
|
– |
Other non-current liabilities |
|
– |
|
(26) |
|
1 |
|
(88) |
Non-current provisions |
|
74 |
|
(56) |
|
73 |
|
(46) |
Other current liabilities |
|
85 |
|
(5) |
|
68 |
|
(2) |
Lease liabilities current |
|
11 |
|
– |
|
10 |
|
– |
|
|
501 |
|
(1,858) |
|
418 |
|
(2,000) |
|
|
|
|
|
|
|
|
|
Tax losses carried forward |
|
100 |
|
– |
|
59 |
|
– |
Set-off |
|
(302) |
|
302 |
|
(249) |
|
249 |
Total |
|
299 |
|
(1,556) |
|
228 |
|
(1,751) |
The valuation of deferred tax assets depends on the probability of the reversal of temporary differences and the utilization of tax loss carry forwards, 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.
No deferred tax assets were recognized for loss carryforwards amounting to €560 million (2023: €566 million). Unrecognized loss carryforwards amounting to €66 million will expire in the years up to and including 2029 (2023: €93 million up to and including 2028), nil losses between 2030 and 2034 (2023: €1 million between 2029 and 2033) and the remaining €494 million in 2035 and beyond (2023: €472 million between 2034 and beyond). In addition, an amount of €15 million (2023: €9 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 €2,957 million (2023: €2,253 million).