BASF Report 2021 Consoli dated Financial Statements – Notes 231 Interest expenses decreased primarily because of the lower 12 Income taxes Changes in deferred taxes in the balance sheet are recorded as balance of financial indebtedness. deferred tax expense or income unless the underlying transaction is Accounting policies recognized directly in equity or in income and expenses recognized Write-downs on / losses from securities and loans declined in equity. For those effects which have been recognized in equity, mainly due to lower impairments on loans to nonconsolidated Group In Germany, a uniform corporate income tax rate of 15.0% as well changes to deferred tax assets and tax liabilities are also recognized companies. as a solidarity surcharge of 5.5% thereon are levied on all distributed directly in equity. and retained earnings. In addition to corporate income tax, income The net interest expense from underfunded pension plans and generated in Germany is subject to a trade tax. It varies depending Deferred tax liabilities are recognized for differences between the similar obligations declined year on year as a result of the lower on the municipality in which the company is represented. The proportional IFRS equity and the tax base of the investment in a interest rate used to determine expenses for pension benefits weighted average tax rate was 14.6% in 2021 (2020: 14.5%). The consolidated subsidiary if a reversal of these differences is expected compared with the previous year. 30% rate used to calculate deferred taxes for German Group in the foreseeable future. Deferred tax liabilities are recognized for companies remained unchanged in 2021. The income of foreign dividend distributions planned for the following year if these The rise in other financial expenses was primarily due to higher net Group companies is assessed using the tax rates applicable in their distributions lead to a reversal of temporary differences. expenses associated with the translation of bonds and the valuation respective countries. of the corresponding hedging instruments against interest and Provisions for German trade tax, corporate income tax and similar currency risks. Deferred taxes are recorded for temporary differences between the income taxes are calculated and recognized based on the expected carrying amount of assets and liabilities in the financial statements taxable income of the consolidated companies less any prepay- according to IFRS and the carrying amounts for tax purposes as ments that have been made. Provisions are set up for interest well as for tax loss carryforwards and unused tax credits. These also accrued. This interest is reported under other financial result, not tax comprise temporary differences arising from business combinations, expense. Other taxes to be assessed are considered accordingly. with the exception of goodwill. Deferred tax assets and liabilities are calculated using the respective country-specific tax rates applicable IFRIC 23 clarifies the application of the recognition and measurement for the period in which the asset or liability is realized or settled. Tax policies from IAS 12 when there is uncertainty regarding income rate changes enacted or substantively enacted on or before the tax-related treatment of individual transactions. They are accounted balance sheet date are taken into consideration. for with the assumption that tax authorities will examine the questionable transaction and have all relevant information. The Deferred tax assets are offset against deferred tax liabilities provided amount of risk provisions is calculated and reviewed with they are related to the same taxation authority. Surpluses of deferred consideration for the results of past tax audits as well as the legal tax assets are only recognized provided that the tax benefits are assessment of not yet audited transactions and the risk of a deviating likely to be realized. The valuation of deferred tax assets is based on tax-related interpretation by the tax authorities. The most probable the probability of a reversal of the differences and the assessment of value of the individual risks is recognized. the ability to utilize tax loss carryforwards and unused tax credits. This depends on whether future taxable profits will exist during the Tax expense and tax rate period in which temporary differences are reversed and in which tax loss carryforwards and unused tax credits can be claimed. The The BASF Group tax rate amounted to 19.2% in 2021 (2020: 5.8%). assessment of recoverability of deferred tax assets is based on The relatively high tax rate in relation to 2020 resulted primarily from internal projections of the future earnings of the particular Group lower nondeductible operating expenses, caused largely in the company. previous year by non-tax-effective impairments of goodwill, and from the increased earnings contributions of countries with higher