14. Income taxes

The breakdown of income taxes by origin is as follows:

Income Tax Expense by Origin	[Table 4.37]
	2008	2009
	€ million	€ million
Income taxes paid or accrued
Germany	(161)	(186)
other countries	(651)	(476)
	(812)	(662)
Deferred taxes
from temporary differences	323	430
from interest carryforwards	11	(11)
from tax loss carryforwards	(168)	(291)
from tax credits	10	23
	176	151
Total	(636)	(511)

The deferred tax assets and liabilities are allocable to the following items in the statement of financial position:

Deferred Tax Assets and Liabilities			[Table 4.38]
	Dec.31, 2008		Dec.31, 2009
	Deferred tax assets	Deferred tax liabilities	Deferred tax assets	Deferred tax liabilities
	€ million	€ million	€ million	€ million
Intangible assets	470	3,766	459	3,645
Property, plant and equipment	67	632	59	793
Financial assets	78	228	48	226
Inventories	324	85	357	51
Receivables	64	511	42	301
Other assets	150	74	101	36
Provisions for pensions and other post-employment benefits	1,170	462	1,229	570
Other provisions	301	318	464	36
Liabilities	524	44	408	37
Interest carryforwards	11	-	-	-
Tax loss carryforwards	429	-	156	-
Tax credits	96	-	112	-
	3,684	6,120	3,435	5,695
of which noncurrent	2,644	5,354	2,573	5,218
Set-off	(2,528)	(2,528)	(2,485)	(2,485)
Total	1,156	3,592	950	3,210

Deferred tax assets from actuarial gains and losses, recognized outside profit or loss, on defined benefit obligations for pensions and other post-employment benefits increased equity by €117 million (2008: €455 million), whereas changes in fair values of available-for-sale financial assets and derivatives designated as hedges resulted in deferred tax liabilities that diminished equity by €36 million (2008: deferred tax assets that increased equity by €50 million). These effects on equity are reflected in the statement of comprehensive income.

The utilization of tax loss carryforwards from previous years reduced the income taxes paid or accrued in 2009 by €260 million (2008: €287 million). Utilization of tax credits reduced income taxes paid or accrued by €6 million (2008: €0 million).

Of the total tax loss carryforwards of €1,047 million in 2009 (2008: €1,856 million), an amount of €579 million (2008: €1,455 million) can probably be utilized within a reasonable period. Deferred tax assets of €156 million (2008: €429 million) were recognized for these tax loss carryforwards, including €13 million (2008: €15 million) outside profit or loss.

The utilization of €468 million (2008: €401 million) of loss carryforwards is subject to legal or economic restrictions. Consequently, no deferred tax assets were recognized for this amount. If it had been probable that these loss carryforwards could be utilized, deferred tax assets of €137 million (2008: €113 million) would have had to be recognized.

Tax credits of €112 million (2008: €96 million) were recognized as deferred tax assets, including €1 million (2008: €3 million) outside profit or loss. The utilization of €32 million (2008: €0 million) of tax credits is subject to legal or economic restrictions. Consequently, no deferred tax assets were recognized for this amount.

Unusable tax credits and tax loss carryforwards expire as follows:

Expiration of Unusable Tax Credits and Tax Loss Carryforwards			[Table 4.39]
	Tax credits		Tax loss carryforwards
	Dec. 31, 2008	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2009
	€ million	€ million	€ million	€ million
One year	-	-	2	-
Two years	-	-	9	23
Three years	-	-	58	28
Four years	-	-	51	39
Five years	-	-	111	123
Thereafter	-	32	170	255
Total	-	32	401	468

In 2009, subsidiaries that reported losses for 2009 or 2008 recognized net deferred tax assets totaling €40 million (2008: €60 million) on temporary differences and tax loss carryforwards. These assets are considered to be unimpaired because the companies concerned are expected to generate taxable income in the future.

Deferred tax liabilities of €14 million were recognized in 2009 (2008: €19 million) for planned dividend payments by subsidiaries. Deferred tax liabilities were not recognized for temporary differences on €8,054 million (2008: €6,651 million) of retained earnings of subsidiaries and associates because the Bayer Group is able to control the timing of the difference reversal and the temporary differences will not reverse in the foreseeable future.

The reported tax expense of €511 million for 2009 (2008: €636 million) differs by €36 million (2008: €62 million) from the expected tax expense of €547 million (2008: €698 million) that would result from applying an expected weighted average tax rate to the pre-tax income of the Group. This average rate is derived from the expected tax rates of individual Group companies and was 29.3% in 2009 (2008: 29.7%). The effective tax rate was 27.3% (2008: 27.0%).

The reconciliation of expected to reported income tax expense and of the expected to the effective tax rate for the Group is as follows:

Reconciliation of Expected to Actual Income Tax Expense			[Table 4.40]
	2008		2009
	€ million	%	€ million	%
Expected income tax expense and expected tax rate	698	29.7	547	29.3

Reduction in taxes due to tax-free income
Income from affiliated companies and divestiture proceeds	(10)	(0.4)	(9)	(0.5)
Other	(51)	(2.2)	(41)	(2.2)

First-time recognition of previously unrecognized deferred tax assets on tax loss carryforwards	(50)	(2.1)	(2)	(0.1)
Use of tax loss carryforwards on which deferred tax assets were not previously recognized	(11)	(0.5)	(1)	(0.1)

Increase in taxes due to non-tax-deductible expenses
Write-downs of investments	29	1.2	5	0.3
Expenses related to litigations	18	0.8	1	0.1
Other	107	4.5	103	5.5

New tax loss carryforwards unlikely to be usable	-	-	10	0.5
Existing tax loss carryforwards on which deferred tax assets were previously recognized but which are unlikely to be usable	1	-	23	1.2

Tax income and expenses relating to other periods	(42)	(1.8)	(129)	(6.9)
Tax effects of changes in tax rates	7	0.3	(18)	(1.0)
Other tax effects	(60)	(2.5)	22	1.2

Actual income tax expense and effective tax rate	636	27.0	511	27.3

back to overview