30 Income taxes

Income taxes in the consolidated income statement

A tax expense of EUR 1.8 billion was recorded in the 2018 financial year, giving rise to an effective tax rate of 32 percent. The main reason for the comparatively high tax burden was impairment losses on goodwill in the Europe operating segment that had no tax effect.

In the prior year, a tax benefit of EUR 0.6 billion was recorded. This tax benefit is mainly attributable to a high deferred tax benefit following the reduction in the U.S. federal tax rate from 35 percent to 21 percent.

The following table provides a breakdown of income taxes in Germany and internationally:

millions of €

 

2018

2017

2016

CURRENT TAXES

592

569

468

Germany

217

219

161

International

375

350

307

DEFERRED TAXES

1,232

(1,127)

975

Germany

334

116

91

International

898

(1,243)

884

 

1,824

(558)

1,443

Deutsche Telekom’s combined income tax rate for 2018 amounts to 31.4 percent (2017: 31.4 percent, 2016: 31.1 percent). It consists of corporate income tax at a rate of 15.0 percent, the solidarity surcharge of 5.5 percent on corporate income tax, and trade tax at an average multiplier of 445 percent (2017: 445 percent, 2016: 436 percent).

Reconciliation of the effective tax rate. Income taxes of EUR -1,824 million (as expense) in the reporting year (2017: EUR 558 million (as benefit), 2016: EUR -1,443 million (as expense)) are derived as follows from the expected income tax expense/benefit that would have arisen had the statutory income tax rate of the parent company (combined income tax rate) been applied to profit/loss before income taxes:

millions of €

 

 

2018

2017

2016

PROFIT BEFORE INCOME TAXES

 

5,153

4,994

4,547

Expected income tax expense (benefit) (Income tax rate applicable to Deutsche Telekom AG: 2018: 31.4%; 2017: 31.4%; 2016: 31.1%)

 

1,618

1,568

1,414

ADJUSTMENTS TO EXPECTED TAX EXPENSE (BENEFIT)

 

 

 

 

Effect of changes in statutory tax rates

 

39

(2,738)

(49)

Tax effects from prior years

 

158

(132)

(58)

Tax effects from other income taxes

 

114

(141)

122

Non-taxable income

 

(16)

(329)

(75)

Tax effects from equity investments

 

(112)

(81)

(850)

Non-deductible expenses

 

170

591

790

Permanent differences

 

(57)

83

158

Goodwill impairment losses

 

186

620

133

Tax effects from loss carryforwards

 

22

(11)

(237)

Tax effects from additions to and reductions of local taxes

 

189

72

59

Adjustment of taxes to different foreign tax rates

 

(489)

(59)

26

Other tax effects

 

2

(1)

10

INCOME TAX EXPENSE (BENEFIT) ACCORDING TO THE CONSOLIDATED INCOME STATEMENT

 

1,824

(558)

1,443

Effective income tax rate

%

35

(11)

32

Current income taxes in the consolidated income statement

The following table provides a breakdown of current income taxes:

millions of €

 

2018

2017

2016

CURRENT INCOME TAXES

592

569

468

Of which: Current tax expense

571

741

494

Prior-period tax expense

21

(172)

(26)

Deferred taxes in the consolidated income statement

Deferred taxes developed as follows:

millions of €

 

2018

2017

2016

DEFERRED TAX EXPENSE (BENEFIT)

1,232

(1,127)

975

Of which: From temporary differences

1,217

(765)

567

From loss carryforwards

49

(381)

339

From tax credits

(34)

19

69

Income taxes in the consolidated statement of financial position

Current income taxes in the consolidated statement of financial position:

millions of €

 

Dec. 31, 2018

Dec. 31, 2017

Recoverable taxes

492

236

Tax liabilities

(328)

(224)

Current taxes recognized in other comprehensive income:

 

 

Hedging instruments

(252)

(267)

Deferred taxes in the consolidated statement of financial position:

millions of €

 

Dec. 31, 2018

Dec. 31, 2017

Deferred tax assets

2,949

4,013

Deferred tax liabilities

(8,240)

(6,967)

 

(5,291)

(2,954)

Of which: Recognized in other comprehensive income:

 

 

Gains (losses) from the remeasurement of defined benefit plans

1,315

1,280

Revaluation surplus

141

0

Hedging instruments

106

17

RECOGNIZED IN OTHER COMPREHENSIVE INCOME BEFORE NON-CONTROLLING INTERESTS

1,562

1,297

Non-controlling interests

(10)

(12)

 

1,552

1,285

Development of deferred taxes:

millions of €

 

Dec. 31, 2018

Dec. 31, 2017

Deferred taxes recognized in the statement of financial position

(5,291)

(2,954)

Difference to prior year

(2,337)

1,843

Of which: Recognized in income statement

(1,232)

1,127

Recognized in other comprehensive income

89

(13)

Recognized in capital reserves

10

(56)

Acquisitions (disposals) (including assets and disposal groups held for sale)

(970)

11

Currency translation adjustments

(234)

774

Development of deferred taxes on loss carryforwards:

millions of €

 

Dec. 31, 2018

Dec. 31, 2017

Deferred taxes on loss carryforwards before allowances

1,917

2,251

Difference to prior year

(334)

(106)

Of which: Recognition (derecognition)

(131)

88

Acquisitions (disposals) (including assets and disposal groups held for sale)

(279)

(6)

Currency translation adjustments

76

(188)

Deferred taxes relate to the following key items in the statement of financial position, loss carryforwards, and tax credits:

millions of €

 

Dec. 31, 2018

 

Dec. 31, 2017

 

Deferred
tax assets

Deferred
tax liabilities

 

Deferred
tax assets

Deferred
tax liabilities

CURRENT ASSETS

1,602

(974)

 

1,255

(423)

Trade and other receivables

823

(213)

 

497

(132)

Inventories

120

0

 

100

(16)

Other assets

655

(140)

 

658

(275)

Contract assets

4

(621)

 

n. a.

n. a.

NON-CURRENT ASSETS

2,726

(12,701)

 

2,964

(10,803)

Intangible assets

588

(7,499)

 

502

(6,339)

Property, plant and equipment

748

(4,205)

 

636

(3,236)

Other financial assets

1,390

(657)

 

1,826

(1,228)

Capitalized contract costs

0

(340)

 

n. a.

n. a.

CURRENT LIABILITIES

992

(706)

 

925

(613)

Financial liabilities

311

(386)

 

206

(384)

Trade and other payables

69

(30)

 

55

(11)

Other provisions

252

(103)

 

286

(58)

Other liabilities

127

(88)

 

378

(160)

Contract liabilities

233

(99)

 

n. a.

n. a.

NON-CURRENT LIABILITIES

4,575

(2,753)

 

4,746

(2,859)

Financial liabilities

1,172

(1,319)

 

1,288

(1,249)

Provisions for pensions and other employee benefits

1,653

(1,242)

 

1,735

(1,398)

Other provisions

737

(186)

 

693

(187)

Other liabilities

877

(4)

 

1,030

(25)

Contract liabilities

136

(2)

 

n. a.

n. a.

RETAINED EARNINGS

0

(118)

 

0

(67)

TAX CREDITS

274

0

 

236

0

LOSS CARRYFORWARDS

1,608

0

 

1,537

0

INTEREST CARRYFORWARDS

184

0

 

148

0

TOTAL

11,961

(17,252)

 

11,811

(14,765)

Of which: non-current

9,608

(15,620)

 

9,798

(13,738)

Netting

(9,012)

9,012

 

(7,798)

7,798

RECOGNITION

2,949

(8,240)

 

4,013

(6,967)

The loss carryforwards amount to:

millions of €

 

Dec. 31, 2018

Dec. 31, 2017

LOSS CARRYFORWARDS FOR CORPORATE INCOME TAX PURPOSES

6,564

6,473

Expiry within

 

 

1 year

31

89

2 years

28

29

3 years

25

55

4 years

571

18

5 years

69

711

After 5 years

4,005

3,629

Unlimited carryforward period

1,835

1,942

Loss carryforwards and temporary differences for which no deferred taxes were recorded amount to:

millions of €

 

Dec. 31, 2018

Dec. 31, 2017

LOSS CARRYFORWARDS FOR CORPORATE INCOME TAX PURPOSES

865

1,034

Expiry within

 

 

1 year

30

79

2 years

9

5

3 years

8

37

4 years

12

12

5 years

30

42

After 5 years

100

63

Unlimited carryforward period

676

796

TEMPORARY DIFFERENCES IN CORPORATE INCOME TAX

507

665

In addition, no deferred taxes are recognized on trade tax loss carryforwards of EUR 20 million (December 31, 2017: EUR 19 million) and on temporary differences for trade tax purposes in the amount of EUR 7 million (December 31, 2017: EUR 5 million). Furthermore, apart from corporate income tax loss carryforwards, no deferred taxes amounting to EUR 164 million (December 31, 2017: EUR 522 million) were recognized for other foreign income tax loss carryforwards and, apart from temporary differences for trade tax purposes, no deferred taxes in the amount of EUR 0 million (December 31, 2017: EUR 6 million) were recognized for other foreign income taxes.

No deferred tax assets were recognized on the aforementioned tax loss carryforwards and temporary differences as it is not probable that taxable profit will be available in the foreseeable future against which these tax loss carryforwards can be utilized.

A positive tax effect in the amount of EUR 31 million (2017: EUR 25 million, 2016: EUR 28 million) attributable to the utilization of tax loss carryforwards on which deferred tax assets had not yet been recognized, was recorded in the reporting year.

No deferred tax liabilities were recognized on temporary differences in connection with equity interests in subsidiaries amounting to EUR 840 million (December 31, 2017: EUR 558 million) as it is unlikely that these differences will be reversed in the near future.

Unrecognized deferred tax assets of EUR 20 million (December 31, 2017: EUR 0 million) arising in connection with company acquisitions in 2013 in the United States operating segment and in 2014 in the Europe operating segment were recognized in 2018, since their future utilization is deemed likely based on current earnings forecasts.

Disclosure of tax effects relating to each component of other comprehensive income:

millions of €

 

2018

 

2017

 

2016

 

Before
tax amount

Tax (expense) benefit

Net of
tax amount

 

Before
tax amount

Tax (expense) benefit

Net of
tax amount

 

Before
tax amount

Tax
(expense) benefit

Net of
tax amount

Items not subsequently reclassified to profit or loss (not recycled)

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) from the remeasurement of defined benefit plans

127

37

164

 

116

(19)

97

 

(660)

205

(455)

Gains (losses) from the remeasurement of equity instruments

(619)

(1)

(620)

 

 

 

 

 

 

 

 

Share of profit (loss) of investments accounted for using the equity method

 

 

 

 

0

0

0

 

0

0

0

 

(492)

36

(456)

 

116

(19)

97

 

(660)

205

(455)

Items subsequently reclassified to profit or loss (recycled), if certain reasons are given

 

 

 

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

 

 

 

 

 

 

 

 

 

 

Recognition of other comprehensive income in income statement

(1)

0

(1)

 

0

0

0

 

(948)

0

(948)

Change in other comprehensive income (not recognized in income statement)

1,033

0

1,033

 

(2,196)

0

(2,196)

 

395

0

395

Gains (losses) from the remeasurement of available-for-sale assets

 

 

 

 

 

 

 

 

 

 

 

Recognition of other comprehensive income in income statement

0

0

0

 

7

(2)

5

 

2,282

(1)

2,281

Change in other comprehensive income (not recognized in income statement)

0

0

0

 

27

0

27

 

2,282

0

(2,323)

Gains (losses) from hedging instruments

 

 

 

 

 

 

 

 

 

 

 

Recognition of other comprehensive income in income statement

(75)

(3)

(78)

 

 

 

 

 

 

 

 

Change in other comprehensive income (not recognized in income statement)

84

0

84

 

 

 

 

 

 

 

 

Gains (losses) from hedging instruments (IAS 39 until December 2017, designated risk component)

 

 

 

 

 

 

 

 

 

 

 

Recognition of other comprehensive income in income statement

(32)

10

(22)

 

450

(141)

309

 

328

(102)

226

Change in other comprehensive income (not recognized in income statement)

(382)

61

(321)

 

(270)

85

(185)

 

(457)

142

(315)

Gains (losses) from hedging instruments
(IFRS 9 from January 2018, hedging costs)

 

 

 

 

 

 

 

 

2,282

 

 

Recognition of other comprehensive income in income statement

3

(1)

2

 

 

 

 

 

 

 

 

Change in other comprehensive income (not recognized in income statement)

56

20

76

 

 

 

 

 

 

 

 

Share of profit (loss) of investments accounted for using the equity method

 

 

 

 

 

 

 

 

 

 

 

Recognition of other comprehensive income in income statement

0

0

0

 

0

0

0

 

7

0

7

Change in other comprehensive income (not recognized in income statement)

7

0

7

 

0

0

0

 

1

0

1

 

693

87

780

 

(1,982)

(58)

(2,040)

 

6,172

39

6,211

OTHER COMPREHENSIVE INCOME

201

123

323

 

(1,866)

(77)

(1,943)

 

5,512

244

5,756

Profit (loss)

 

 

3,328

 

 

 

5,551

 

 

 

3,104

TOTAL COMPREHENSIVE INCOME

 

 

3,652

 

 

 

3,608

 

 

 

8,860