2. Effects of New Financial Reporting Standards

2.1 Financial Reporting Standards Applied for the First Time in the Reporting Period

Initial application of the standards listed in the table had little or no material impact on the presentation of the net assets, financial position and results of operations.

Global Minimum Taxation

The Covestro Group falls within the scope of the OECD’s Global Anti-Base Erosion (GloBE) Model Rules (Pillar Two). The Pillar Two legislation entered into force as of January 1, 2024. Under the legislation, Covestro is required to pay an additional tax per country in the amount of the difference between the GloBE effective tax rate and a minimum tax rate of 15%. All Group companies (with the exception of the companies being wound up in Switzerland) are subject to a nominal tax rate of more than 15%. Even if the nominal tax rate is more than 15%, the Pillar Two legislation could theoretically result in a tax expense due to specific adjustments.

Covestro regularly reviews the potential effects of the legislation on global minimum taxation on the Covestro Group. No such effects on the consolidated financial statements were identified as of June 30, 2024.

2.2 Published Financial Reporting Standards That Have Not Yet Been Applied

There were no new findings regarding the potential effects of reporting standards newly published up to the authorization for issue of the financial statements, but not yet required to be applied, whose application could affect the presentation of the net assets, financial position and results of operations that differ from the information presented in the 2023 consolidated financial statements.

On April 9, 2024, the IASB published the new accounting standard IFRS 18 (Presentation and Disclosure in Financial Statements). Application of IFRS 18 is mandatory for fiscal years beginning on or after January 1, 2027; early adoption will be permitted, once the standard has been endorsed by the EU. The new standard sets out fundamental requirements for the presentation of the financial statements and for the necessary disclosures in the notes to the financial statements, which have previously been governed by IAS 1 (Presentation of Financial Statements). IFRS 18 does not affect measurement itself, which is governed by the relevant IFRS standards. IFRS 18 generally affects all components of the financial statements, but in particular the income statement, which is part of the statement of comprehensive income, and the notes to the financial statements, while there are less far-reaching changes for the statement of cash flows and hardly any for the other components of the financial statements. In addition, requirements have been published for the structure and (dis)aggregation of information for the primary financial statements and the notes. Also mandatory are the extended disclosures of management-defined performance measures (MPMs), which may give rise to many different interdependencies with internal management and reporting processes and systems as well as with capital market communications. Covestro has launched a project across the Group, which initially focuses on the analysis of additional data to be collected. The specific consequences for the presentation of the net assets, financial position and results of operations cannot be quantified at this stage.

In relation to the Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7) approved by the IASB on May 30, 2024, EU endorsement is still pending. These amendments contain changes and clarifications relating to the derecognition of financial liabilities, the application of the cash flow criterion for the purpose of classifying financial instruments, and additional disclosure requirements. Subject to the completion of the analysis, the initial application is not expected to have any, or any material, effect on the presentation of Covestro’s net assets, financial position, and results of operations.

The IASB published the amendments arising from the Annual Improvements to IFRS Accounting Standards – Volume 11 on July 18, 2024. Once endorsed by the EU, application of these amendments will be mandatory for fiscal years beginning on or after January 1, 2026. The affected standards are IFRS 1, IFRS 7, IFRS 9, IFRS 10, and IAS 7. As far as can be ascertained at present, the amendments are not expected to materially affect the presentation of Covestro’s net assets, financial position and results of operations. A final analysis is still outstanding.