The breakdown of tax expenses by type is shown in the table below:
| Income taxes | ||
|---|---|---|
| 2023 | 2024 | |
| € million | € million | |
| Current taxes | (299) | (262) |
| tax expense current year | (288) | (264) |
| (tax expense) / tax income previous years | (11) | 2 |
| Deferred taxes | 24 | 17 |
| from temporary differences | 55 | 32 |
| from tax loss carryforwards and tax credits | (31) | (15) |
| Total | (275) | (245) |
The deferred tax assets and liabilities were allocated to the items in the statements of financial position as shown in the table below:
| Deferred tax assets and liabilities | ||||||
|---|---|---|---|---|---|---|
| Dec. 31, 2023 | Dec. 31, 2024 | |||||
| Deferred tax assets |
Deferred tax liabilities |
of which recognized in profit or loss |
Deferred tax assets |
Deferred tax liabilities |
of which recognized in profit or loss |
|
| € million | € million | € million | € million | € million | € million | |
| Intangible assets | 55 | (57) | (2) | 55 | (64) | (9) |
| Property, plant and equipment | 132 | (269) | (137) | 153 | (219) | (66) |
| of which right-of-use assets from application of IFRS 16 | – | (129) | (129) | – | (128) | (128) |
| Financial assets | – | (57) | (53) | – | (92) | (90) |
| Inventories | 58 | (3) | 55 | 73 | – | 73 |
| Receivables | 2 | (88) | (86) | 1 | (90) | (89) |
| Provisions for pensions and other post-employment benefits | 70 | (15) | (11) | 66 | (24) | (22) |
| Other provisions | 99 | (8) | 91 | 73 | (8) | 65 |
| Liabilities | 163 | (41) | 122 | 184 | (40) | 144 |
| of which lease liabilities from application of IFRS 16 | 121 | – | 121 | 126 | – | 126 |
| Tax loss and interest carryforwards and tax credits | 19 | – | 19 | 4 | – | 4 |
| Total | 598 | (538) | (2) | 609 | (537) | 10 |
| of which noncurrent | 533 | (435) | 514 | (444) | ||
| Offsetting | (282) | 282 | (333) | 333 | ||
| Recognition | 316 | (256) | 276 | (204) | ||
No deferred tax assets were recognized for tax deductible temporary differences in the amount of €780 million (previous year: €665 million) as it is unlikely that these can be utilized within a foreseeable period.
Of the total tax loss and interest carryforwards of €4,284 million (previous year: €3,117 million), an amount of €10 million (previous year: €80 million) is expected to be usable within a foreseeable period. The increase in loss carryforwards was due to additional loss carryforwards in the reporting year and tax reassessments for prior years. Deferred tax assets of €2 million (previous year: €17 million) were recognized for the amount of tax loss and interest carryforwards expected to be usable.
The use of €4,274 million (previous year: €3,037 million) of existing tax loss and interest carryforwards was subject to legal or economic restrictions. Of this amount, €1,832 million is attributable to German corporation tax, €1,985 million to German trade tax, and €50 million to interest carryforwards in Germany. A loss carryforward of €318 million is attributable to Switzerland. The possible takeover by ADNOC could have a negative impact on the amount of tax loss carryforwards.
| Expiration of unusable tax loss and interest carryforwards | ||
|---|---|---|
| Tax loss and interest carryforwards | ||
| Dec. 31, 2023 | Dec. 31, 2024 | |
| € million | € million | |
| Within one year | – | – |
| Within two years | – | – |
| Within three years | – | – |
| Within four years | – | – |
| Within five years | – | 177 |
| Thereafter | 3,037 | 4,097 |
| Total | 3,037 | 4,274 |
In the reporting year, tax credits of €2 million (previous year: €2 million) were recognized.
In fiscal 2024, subsidiaries that reported losses for the reporting year or the previous year recognized net deferred tax assets totaling €22 million (previous year: €6 million) from temporary differences and tax loss carryforwards. Of this amount, €4 million (previous year: €4 million) was attributable to net deferred tax assets from tax loss and interest carryforwards. All deferred tax assets are considered to be unimpaired because the companies concerned are expected to generate taxable income and tax strategies ensure that the deferred tax assets will be utilized.
Deferred tax liabilities of €21 million (previous year: €27 million) were recognized in the reporting year for planned dividend payments by subsidiaries. No deferred tax liabilities were recognized for temporary differences of €133 million (previous year: €22 million) relating to shares in subsidiaries, as the parent company can control the timing of the reversal of the temporary differences, and it is unlikely that these temporary differences will reverse in the foreseeable future.
The reported tax expense of €245 million for fiscal 2024 (previous year: €275 million) was €283 million lower (previous year: €288 million lower) than the expected tax income of €38 million (previous year: €13 million) that would have resulted from applying an expected weighted average tax rate to the pretax income of the Covestro Group. This average tax rate was derived from the nominal tax rates of the individual Group companies. As losses and profits of different Group companies were offset using local tax rates, the average tax rate was different from the nominal tax rates of the companies. This average tax rate was 140.4% in the year 2024 (previous year: - 17.0%). The effective tax rate was –907.4% (previous year: 376.7%).
The Covestro Group operates in various countries. As in the previous year, the tax rates ranged from 14.1% to 34.0% due to national regulations.
The reconciliation of expected to actual income tax expense and of the expected to the effective tax rate for the Covestro Group is shown in the following table:
| Reconciliation of expected to actual income tax expense | ||||
|---|---|---|---|---|
| 2023 | 2024 | |||
| € million | % | € million | % | |
| Income before income taxes | 73 | 100.0 | (27) | 100.0 |
| Expected income tax expense / (income) and expected tax rate | (13) | –17.0 | (38) | 140.4 |
| Reduction in taxes due to tax-free income | (14) | –19.1 | (14) | 51.9 |
| Increase in taxes due to non-tax-deductible expenses | 40 | 54.5 | 27 | –99.8 |
| New tax loss carryforwards and temporary differences unlikely to be usable | 197 | 269.5 | 176 | –651.8 |
| Existing tax loss carryforwards and temporary differences on which deferred tax assets were previously recognized but which are unlikely to be usable | 42 | 57.4 | 46 | –170.4 |
| Tax income (–) and expenses (+) relating to other periods | 8 | 10.9 | (3) | 11.1 |
| Tax effects of change in tax rates | (4) | –5.5 | (17) | 63.0 |
| Other tax effects | 19 | 26.0 | 68 | –251.8 |
| Actual income tax expense and effective tax rate | 275 | 376.7 | 245 | –907.4 |
Other tax effects are primarily the result of ineligible foreign withholding taxes, in particular on investment income of subsidiaries totaling €54 million (previous year: €62 million) and of the change in deferred tax liabilities on planned dividend payments by subsidiaries in the amount of –€6 million (previous year: –€47 million).
The Covestro Group falls within the scope of the OECD’s Global Anti-Base Erosion (GloBE) Model Rules (Pillar Two). The regulations of the German Minimum Taxation Act came into force on January 1, 2024. Under the legislation, Covestro is required to pay additional tax per country in the amount of the difference between the effective tax rate and a minimum tax rate of 15%. All Group companies (with the exception of Covestro International SA in Switzerland, which is being wound up) are subject to a nominal tax rate of more than 15%. Even if the nominal tax rate is more than 15%, the new legislation could theoretically result in a tax expense due to the minimum taxation. Covestro AG regularly reviews the impact of global minimum taxation legislation in the relevant jurisdictions. As of December 31, 2024, the Covestro Group is subject to an effective tax rate of more than 15% in all jurisdictions in which it operates.
Covestro applies the temporary mandatory exemption relating to the recognition of deferred taxes resulting from the introduction of global minimum taxation and recognizes these taxes as current tax expense/income when they are incurred.