Solvay
2019 Annual Integrated Report

Accounting policy

Current taxes

The current tax payable is based on taxable profit of the year. Taxable profit differs from profit as reported in the consolidated income statement because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred taxes

Deferred taxes are recognized for temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their corresponding tax bases used in the computation of taxable profit.

Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are generally recognized for all taxable temporary differences.

No deferred tax liabilities are recognized following the initial recognition of goodwill. In addition, no deferred tax assets or liabilities are recognized with respect to the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting profit nor taxable profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, joint operations, joint ventures, and associates, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of the deferred tax assets is reviewed at each reporting date. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that the Group will earn sufficient taxable profits against which the deductions can be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Deferred tax assets other than tax loss carryforwards are analyzed on a case by case basis, taking into account all relevant facts and circumstances. For example, a zero taxable profit, after deducting the amounts paid to retirees under a defined benefit plan and for which a deductible temporary difference existed, can justify the recognition of the underlying deferred tax assets. Recognition of deferred tax assets for tax loss carryforwards requires a positive taxable profit during the year that enables the utilization of tax losses that originated in the past. Because of uncertainties inherent to predicting such positive taxable profit, recognition of deferred tax assets from tax loss carryforwards is based on a case by case analysis, which is usually based on five-year profit forecasts, except with respect to any financial company for which ten-year financial profit forecasts are considered highly predictable and are consequently used.

The corporate tax reporting team, which monitors the Group deferred tax positions, is involved in assessing deferred tax assets.

Further details are provided in note F7.B.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current tax assets and liabilities are offset when there is a legally enforceable right to set off the recognized amounts and when the Group intends to settle its current tax assets and liabilities on a net basis.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred taxes for the period

Current and deferred taxes for the period are recognized as an expense or income in profit or loss, except when they relate to items that are recognized outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognized outside profit or loss, or when they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in the accounting for the business combination.

F7.A. Income taxes

The income taxes (net expense) recognized in the consolidated income statement increased by € (77) million in 2019 compared to 2018.  The income taxes (net income) recognized in other comprehensive income increased by € 47 million in 2019 compared to 2018, mainly due to the decrease of discount rates on post-retirement benefits.

In € million

2019

2018

 

(1)

Of which € 11 million in Adjustments in 2019

(2)

Of which € (98) million in Adjustments in 2019

(*)

Adjustments

Current taxes related to current year(1)

(147)

(158)

a)

Provisions for tax litigations(*)

1

4

 

Other current taxes related to prior years(*)

3

30

b)

Current taxes

(143)

(124)

 

Changes in unrecognized deferred tax assets(2)

(110)

88

c)

Deferred tax income on amortization of PPA step-ups(*)

45

50

 

Deferred tax impact of changes in the nominal tax rates(*)

15

(2)

d)

Deferred taxes related to prior years(*)

7

2

 

Reversal of deferred taxes related to Oil & Gas impairment(*)

167

 

e)

Other deferred taxes

(134)

(89)

f)

Deferred taxes

(11)

49

 

Income taxes recognized in the consolidated income statement

(153)

(75)

 

Income taxes on items recognized in other comprehensive income

48

1

 

Note: the Underlying tax expense in the Business Review includes the IFRS income taxes excluding the Adjustments.

Main comments regarding the current taxes

a) The current taxes related to current year decreased slightly by € 11 million.

b) The other current taxes related to prior years were mainly impacted in 2018 by the reversal of the 2017 accrual for the one-time tax on unremitted earnings resulting from the US tax reform enacted at year-end 2017 (€ 31 million), following the application of new Internal Revenue Service guidance in 2018.

Main comments regarding the deferred taxes

(see column “Recognized in income statement” in the table in section F7.C. for changes in deferred taxes by nature)

c) Changes in unrecognized deferred tax assets:

  • In 2018, this change amounted to € 88 million resulting mainly from the statutory reorganization in Brazil (€ 38 million) and from the expected capital gain on the Polyamides divestment in 2019 (€ 67 million);
  • in 2019, this change amounts to € (110) million resulting mainly from a revision of the forecasts of utilization of tax losses carried forward in the holding companies (€ (58) million) and from the reversal of deferred taxes (mainly on capital allowances deemed not to be utilized within the next five years) in the United Kingdom (€ (56) million).

d) The deferred tax impact of changes in the nominal rates:

  • In 2019, the income of € 15 million resulted mainly from the update in the expected rate applicable related to the timing of the reversal of temporary differences in France.

e) The deferred tax impact of the impairment of the Oil & Gas assets:

f) Other deferred taxes:

  • In 2018, the other deferred taxes (€ (89) million) included:
  • the utilization of tax losses carried forward for € (99) million;
  • the recognition of deferred tax assets on temporary disallowed interests in the United States for € 22 million;
  • the retroactive restatement for € 19 million resulting from IAS 12 Income Taxes amendment related to hybrid coupons that are recognized in P&L (prior to the change, recognition in equity);
  • other net increase and reversal of other temporary differences for € (31) million.
  • In 2019, the other deferred taxes (€ (134) million) included:
  • the main utilization of tax losses carried forward for € (92) million, mainly in the United States and in holding companies;
  • the recognition of deferred tax assets on temporary disallowed interests in the United States for € 17 million;
  • other net increase and reversal of other temporary differences for € (59) million.

F7.B. Reconciliation of the income tax expense

The effective income tax expense has been reconciled with the theoretical tax expense obtained by applying to the pre-tax profit of each Group entity the nominal tax rate prevailing in the country in which it operates.

In € million

2019

2018

Profit for the year before taxes

74

791

Earnings from associates and joint ventures

95

43

Profit for the year before taxes excluding earnings from associates and joint ventures

(21)

748

Reconciliation of the tax charge

 

 

Total tax charge of the Group entitites computed on the basis of the respective local nominal tax rates

(77)

(201)

Weighted average nominal rate

Not relevant

27%

Tax effect of changes in nominal tax rates

15

(2)

Changes in unrecognized deferred tax assets

(110)

88

Tax effect of permanent differences

37

28

Gains and losses with no tax expense and income

(3)

7

US taxes disconnected from profit for the year before taxes

(17)

(21)

Provisions for tax litigations

1

4

Other tax effect of current and deferred tax adjustments related to prior years

12

32

Tax effect on distribution of dividends

(11)

(11)

Effective tax charge

(153)

(75)

Effective tax rate

207%

10%

The weighted average nominal rate of 2019 is not relevant as the profit before taxes and equity earnings is negative after the impairment of Oil & Gas assets amounting to € (825) million. After excluding this impairment, the weighted average nominal rate of 2019 was 30% and could be compared to the rate of 2018 of 27%. This increase is mainly due to an unfavorable mix effect resulting notably from a lower profit before tax in the United States.

The effective tax rate was 10% in 2018 (restated, see comments on item f in previous table for amendment of IAS 12). The effective rate in 2019 is not relevant either (207%). After excluding the impairment Oil & Gas, the effective rate would have been 36%. This increase of 26% is mainly due to the change in unrecognized deferred tax assets: € (110) million in 2019 versus € 88 million that contributes to increase significantly the effective tax rate (see comments on item c in previous table).

F7.C. Deferred taxes in the consolidated statement of financial position

2019
In € million

Opening balance

Recognized in income statement

Recognized in other com­pre­hensive income

Ex­change rate effect

Transfer to asset held for sale

Other

Closing balance

Temporary differences

 

 

 

 

 

 

 

Employee benefits obligations

549

(35)

48

3

(2)

 

563

Provisions other than employee benefits

252

(8)

 

1

(1)

 

243

Property, plant and equipment

(249)

 

 

(5)

28

 

(229)

Intangible assets

(499)

78

 

(11)

 

1

(432)

Right-of-use assets and lease liabilities

 

 

 

 

 

 

(1)

Goodwill

(38)

128

 

 

 

 

91

Other temporary differences

101

(60)

 

1

12

(1)

55

Tax losses

359

(146)

 

1

 

 

214

Tax credits

32

2

 

 

 

 

34

Assets held for sale

 

30

 

 

 

(30)

 

Total (net amount)

505

(11)

48

(10)

36

(30)

538

The net deferred tax assets at year-end 2019 amount to € 538 million.

2018
In € million

Opening balance

Recognized in income statement

Recognized in other com­pre­hensive income

Ex­change rate effect

IFRS 9

Transfer to asset held for sale

Other

Closing balance

Temporary differences

 

 

 

 

 

 

 

 

Employee benefits obligations

599

(41)

(1)

1

 

(7)

(1)

549

Provisions other than employee benefits

188

63

 

1

 

 

 

252

Property, plant and equipment and intangible assets

(769)

26

 

(29)

 

24

 

(749)

Goodwill(1)

(26)

(12)

 

 

 

 

 

(38)

Other(2)(3)

(20)

115

2

 

2

4

(3)

101

Tax losses

346

10

 

1

 

 

2

359

Tax credits(4)

159

(126)

 

 

 

 

 

32

Assets held for sale

 

13

 

 

 

 

(13)

 

Total (net amount)

476

49

1

(26)

2

20

4

505

(1) Of which amortization of Oil & Gas goodwill in the United States

(41)

(11)

 

 

 

 

 

(52)

(2) Of which reversal of US one-time tax

(123)

123

 

 

 

 

 

 

(3) Including the restatement related to the perpetual hybrid bonds coupons

 

19

 

 

 

 

(19)

 

(4) Of which reversal of US foreign tax credits due to reversal of one-time tax

123

(123)

 

 

 

 

 

 

The net deferred tax assets at year-end 2018 amounted to € 505 million.

The significant components of the deferred tax assets and deferred tax liabilities at the end of 2019 and 2018 are as follows:

2019
In € million

Deferred tax assets

Deferred tax liabilities

Net deferred taxes before impairment

Impairment

Net deferred taxes

Employee benefits obligations

609

(10)

599

(35)

563

Provisions other than employee benefits

272

(4)

267

(24)

243

Property, plant and equipment

(1)

(198)

(198)

(31)

(229)

Intangible assets

66

(498)

(432)

 

(432)

Right-of-use assets and lease liabilities

80

(81)

(1)

 

(1)

Goodwill

91

 

91

 

91

Other

114

(49)

65

(10)

55

Temporary differences

1,230

(840)

391

(100)

290

Operational losses

1,590

 

1,590

(1,419)

171

Non-operational losses

339

 

339

(297)

42

Tax losses

1,929

 

1,929

(1,716)

213

Tax credits carried forward

78

 

77

(43)

34

Netting deferred taxes

(658)

658

 

 

 

Deferred taxes

2,579

(182)

2,397

(1,859)

538

2018
In € million

Deferred tax assets

Deferred tax liabilities

Net deferred taxes before impairment

Impairment

Net deferred taxes

Employee benefits obligations

563

(10)

553

(4)

549

Provisions other than employee benefits

297

(3)

294

(42)

252

Property, plant and equipment

 

(259)

(259)

10

(249)

Intangible assets

47

(546)

(499)

 

(499)

Goodwill

15

(52)

(38)

 

(38)

Other

163

(39)

123

(22)

101

Temporary differences

1,084

(911)

174

(58)

116

Operational losses

1,723

 

1,723

(1,418)

304

Non-operational losses

364

 

364

(310)

54

Tax losses

2,087

 

2,087

(1,729)

359

Tax credits carried forward

78

 

78

(46)

32

Netting deferred taxes

(555)

555

 

 

 

Deferred taxes

2,694

(355)

2,339

(1,833)

505

The total net deferred tax assets at € 538 million at year-end 2019 are € 33 million higher than in 2018. The main changes in 2019 are related to the following items:

  • deferred tax assets on employee benefits obligations: € 563 million at year-end 2019, € 14 million higher than in 2018. The change was mainly impacted by reversal of temporary differences in income statement and by the taxes on the remeasurement in Other Comprehensive Income of employee benefits obligations (see note F34.A. Provisions for employee benefits);
  • deferred tax liabilities on intangible assets for € (432) million at year-end 2019, € 67 million lower than in 2018. The decrease in these liabilities in 2019 mainly reflects the tax impact of € 45 million of amortization in the consolidated income statement of the step-up of intangible assets resulting from Purchase Price Allocation;
  • deferred taxes on goodwill: € 91 million at year-end 2019, € 127 million higher than in 2018 mainly due to the reversal of deferred tax liability and recognition of deferred tax assets in the United States resulting from the impairment of the deductible goodwill for Oil & Gas in the US tax unit, i.e. € 139 million out of a total for all temporary differences of € 167 million;
  • deferred taxes on tax losses: € 214 million at year-end 2019, € (145) million lower than in 2018 mainly due to the utilization of main tax losses carried forward for € (92) million and the change in unrecognized deferred tax assets on losses in the holding companies for € (58) million;
  • deferred tax assets on other temporary differences: € 55 million at year-end 2019, € (46) million lower than in 2018. This decrease is related to:
  • additional temporary disallowed interests in the United States for € 17 million;
  • additional deferred tax liabilities on unremitted earnings for € (13) million, mainly for US subsidiaries;
  • inventories for € (8) million;
  • adjustments related to discontinued operations for € (30) million;
  • other various impacts for € (12) million.

Only € (44) million for deferred tax liabilities on unremitted earnings were recognized. An amount of € 20 million was not recognized because the Group controls the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.

Recognized deferred tax assets for which utilization depends on future taxable profits in excess of the profit arising from the reversal of existing taxable temporary differences within entities that have suffered a tax loss in either current or preceding year in the related tax jurisdiction, amount to € 601 million. This recognition is justified by favorable expectations as to future taxable profits.

F7.D. Other information

For the majority of the Group’s tax loss carryforwards, no deferred tax assets have been recognized. The unrecognized tax losses are mainly located in countries where they can be carried forward indefinitely. The tax losses carried forward generating deferred tax assets are given below by expiration date.

In € million

2019

2018

Within 1 year

12

19

Within 2 years

19

18

Within 3 years

15

6

Within 4 years

24

18

Within 5 or more years

38

202

No time limit

713

1,037

Total of tax losses carried forward which have generated recognized deferred tax assets

822

1,302

Tax losses carried forward for which no deferred tax assets were recognized

6,803

6,916

Total of tax losses carried forward

7,625

8,217

The tax losses carried forward (€ 822 million) have generated deferred tax assets for € 214 million. In 2018, the tax loss carried forward (€ 1,302 million) had generated deferred tax assets for € 359 million. The decrease of tax losses carried forward which have generated recognized deferred tax assets is mainly due to the utilization of tax losses in the United States.