31. Income tax
This note covers the Group’s current and deferred income tax exposure, with corresponding impacts on the statement of profit or loss and other comprehensive income and the statement of financial position.
Management believes that its accruals for tax liabilities are sufficient for all open tax years based on its assessment of existing facts, prior experiences and interpretations of tax laws.
Amounts recognized in profit or loss
(In € million) |
|
Year ended |
|
Year ended |
|---|---|---|---|---|
Current year |
|
(124.4) |
|
(113.5) |
Adjustments for prior years |
|
7.2 |
|
2.7 |
Current tax expense |
|
(117.2) |
|
(110.8) |
Origination and reversal of temporary differences |
|
38.8 |
|
40.6 |
Tax rate modifications |
|
(0.1) |
|
(8.1) |
Recognition of previously unrecognized tax losses |
|
0.2 |
|
– |
Adjustments for prior years |
|
(8.2) |
|
(2.5) |
Deferred tax benefit |
|
30.7 |
|
30.0 |
Income tax expense |
|
(86.5) |
|
(80.8) |
Amounts recognized in other comprehensive income
The Group has recognized in other comprehensive income a deferred tax expense of €1.9 million relating to the remeasurement of defined benefit plans for the year ended December 31, 2024 (a deferred tax expense of €10.2 million for the year ended December 31, 2023).
Reconciliation of effective tax expense
The following table presents the Group’s reconciliation between profit before income tax and the income tax expense. The reconciliation is based on the Company’s applicable Swiss tax rate and adjusts for the effect of tax rates applied by Group companies in other jurisdictions because the Group’s business activities and taxable income are mostly located outside Switzerland. The effect of tax rates in foreign jurisdictions comprises the difference between the Company’s applicable Swiss tax rate and the statutory tax rates per each individual jurisdiction. The Company’s applicable Swiss tax rate of 15.19% for the year ended December 31, 2024 slightly increased compared to the comparative period (13.94%).
(In € million) |
|
Year ended |
|
Year ended |
|---|---|---|---|---|
Profit before income tax |
|
281.0 |
|
324.0 |
Income tax using the Swiss tax rate of 15.19% (2023: 13.94%) |
|
(42.7) |
|
(45.2) |
Effect of tax rates in foreign jurisdictions |
|
(31.1) |
|
(28.3) |
Non-deductible expenses |
|
(10.2) |
|
(9.0) |
Tax-exempt income |
|
19.8 |
|
28.3 |
Withholding tax |
|
(12.6) |
|
(10.6) |
Tax rate modifications |
|
(0.1) |
|
(8.1) |
Recognition of previously unrecognized tax losses |
|
0.2 |
|
– |
Unrecognized tax losses and temporary differences |
|
(4.4) |
|
(1.3) |
Tax uncertainties |
|
0.9 |
|
(7.3) |
Tax on undistributed profits |
|
(3.4) |
|
0.5 |
Adjustments for prior years |
|
(1.0) |
|
0.2 |
Current tax expense from global minimum top-up tax |
|
(1.9) |
|
– |
Income tax expense |
|
(86.5) |
|
(80.8) |
The effective rate for the year ended December 31, 2024 was 30.8% (24.9% for the year ended December 31, 2023).
Current tax assets and liabilities
Current tax assets of €13.9 million as of December 31, 2024 (€6.0 million as of December 31, 2023) represent the amount of income taxes recoverable with respect to current and prior periods and arise from the payment of tax in excess of the amounts due to the relevant tax authorities. Current tax liabilities of €50.3 million as of December 31, 2024 (€49.3 million as of December 31, 2023) represent the amount of income taxes payable with respect to current and prior periods.
Recognized deferred tax assets and liabilities
(In € million) |
|
As of |
|
As of |
|---|---|---|---|---|
Included in the statement of financial position as: |
|
|
|
|
Deferred tax assets |
|
68.7 |
|
60.6 |
Deferred tax liabilities |
|
(223.0) |
|
(244.2) |
Total recognized net deferred tax liabilities |
|
(154.3) |
|
(183.6) |
The following table provides details about the components of deferred tax assets and liabilities.
(In € million) |
|
PP&E |
|
Intangible assets |
|
Inventories |
|
Receivables |
|
Other payables |
|
Deferred revenue |
|
Unremitted earnings |
|
Other items |
|
Net deferred |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying amount as of Jan. 1, 2023 |
|
(143.8) |
|
(159.8) |
|
23.6 |
|
0.3 |
|
40.1 |
|
73.6 |
|
(46.6) |
|
11.3 |
|
(201.3) |
Recognized in profit or loss |
|
(3.6) |
|
26.5 |
|
8.5 |
|
0.5 |
|
(0.6) |
|
1.7 |
|
0.5 |
|
(3.5) |
|
30.0 |
Recognized in other comprehensive income |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
(10.2) |
|
(10.2) |
Effect of movements in exchange rates |
|
1.8 |
|
0.7 |
|
(0.1) |
|
0.1 |
|
(2.3) |
|
(1.2) |
|
– |
|
(1.1) |
|
(2.1) |
Carrying amount as of Dec. 31, 2023 |
|
(145.6) |
|
(132.6) |
|
32.0 |
|
0.9 |
|
37.2 |
|
74.1 |
|
(46.1) |
|
(3.5) |
|
(183.6) |
Carrying amount as of Jan. 1, 2024 |
|
(145.6) |
|
(132.6) |
|
32.0 |
|
0.9 |
|
37.2 |
|
74.1 |
|
(46.1) |
|
(3.5) |
|
(183.6) |
Recognized in profit or loss |
|
(24.8) |
|
23.6 |
|
(4.3) |
|
(3.1) |
|
(6.4) |
|
17.7 |
|
(3.3) |
|
31.3 |
|
30.7 |
Recognized in other comprehensive income |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
(1.9) |
|
(1.9) |
Effect of movements in exchange rates |
|
(2.4) |
|
(1.0) |
|
(0.1) |
|
– |
|
0.8 |
|
2.0 |
|
– |
|
1.2 |
|
0.5 |
Carrying amount as of Dec. 31, 2024 |
|
(172.8) |
|
(110.0) |
|
27.6 |
|
(2.2) |
|
31.6 |
|
93.8 |
|
(49.4) |
|
27.1 |
|
(154.3) |
Other payables mainly include a deferred tax asset relating to liabilities for various customer incentive programs. Other items mainly include net deferred tax assets or liabilities relating to employee benefits and tax loss carry-forwards. Tax loss carry-forwards recognized as a deferred tax asset amount to €20.5 million as of December 31, 2024 (€5.9 million as of December 31, 2023).
Unrecognized deferred tax assets
Deferred tax assets have not been recognized with respect to tax losses of €12.1 million (gross amount €39.1 million) as of December 31, 2024 (€9.3 million, gross amount €31.2 million as of December 31, 2023) because management has assessed that it is not probable that future taxable profit will be available against which the Group can utilize the benefits therefrom. Under the current applicable tax legislation, €30.3 million of the unrecognized tax losses as of December 31, 2024 does not expire while €4.0 million expires in two to five years and €4.8 million expires after more than five years.
OECD Pillar Two model rules
In 2021, the OECD published a regulatory framework for a global minimum top-up income tax (the OECD Pillar Two model rules). The rules are designed to ensure that multinational companies within the scope of the rules pay a minimum tax rate of 15% in each jurisdiction where they operate.
The Group became subject to the global minimum 15% top-up tax under the OECD Pillar Two Model Rules from January 1, 2024. The Group applies the transitional safe harbor rules for the jurisdiction it operates. It has recognized a current tax expense of €1.9 million for the year ended December 31, 2024 relating to top-up tax in UAE (statutory tax rate of 9%). The top-up tax for 2024 is levied on one of the Group’s subsidiaries in Luxembourg. For 2025, any top-up tax under the income inclusion rule will be levied in Switzerland.
The Group applies the exception to recognizing and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.
Accounting policy
Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive income.
For subsidiaries in which the profits are not considered to be permanently reinvested, the additional tax consequences of future dividend distributions are recognized as income tax expense.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect of previous years. Current tax assets and liabilities are only offset if certain criteria are met.
Deferred tax
Deferred tax is recognized, using the balance sheet method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects 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 and the Group is in a position to control the timing of the reversal of the temporary differences. Deferred tax is also not recognized in relation to Pillar Two income taxes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on tax rates that have been enacted or substantively enacted at the reporting date.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Group. The recoverability of deferred tax assets is reviewed at each reporting date. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax assets and liabilities are only offset if certain criteria are met.
Significant judgments and estimates
Determining the Group’s worldwide income tax liability requires significant judgment and the use of estimates and assumptions, some of which are highly uncertain. Each tax jurisdiction’s laws are complex and subject to different interpretations by the taxpayer and the respective tax authorities. Significant judgment is required in evaluating the Group’s tax positions, including evaluating uncertainties. To the extent actual results differ from these estimates relating to future periods and depending on the tax strategies that the Group may implement, the Group’s financial position may be directly affected.
Deferred tax assets represent deductions available to reduce taxable income in future years. The Group evaluates the recoverability of deferred tax assets by assessing the adequacy of future taxable income, including reversal of taxable temporary differences, forecasted earnings and available tax planning strategies. Determining the sources of future taxable income relies heavily on the use of estimates. The Group recognizes deferred tax assets when the Group considers it probable that the deferred tax assets will be recoverable.