26 Income taxes

INCOME TAXES IN THE CONSOLIDATED INCOME STATEMENT

In the 2017 financial year, with a profit before income tax of EUR 5.0 billion, the tax benefit totaled EUR 0.6 billion. This tax benefit is mainly attributable to the reduction in the U.S. federal tax rate from 35 percent to 21 percent, which resulted in non-cash deferred tax benefits of EUR 2.7 billion at T - Mobile US arising from the remeasurement of the surplus amount of deferred tax liabilities. In addition, deferred tax assets of EUR 0.2 billion were recognized on federal loss carryforwards in the United States. In Germany, there was a tax benefit of a similar amount for previous years.

By contrast, the effective tax rate was increased by impairment losses on the financial stakes in BT and on goodwill in the Systems Solutions and Europe operating segments, which did not reduce the tax expense, and were only partially offset by tax-free proceeds from the disposal of interests in Strato and Scout24 AG.

In the prior year, a tax expense of EUR 1.4 billion was recorded, ­corresponding to an effective tax rate of 32 percent.

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

millions of €
  2017 2016 2015
Current taxes 569 468 249
Germany 219 161 (16)
International 350 307 265
       
Deferred taxes (1,127) 975 1,027
Germany 116 91 831
International (1,243) 884 196
  (558) 1,443 1,276

Deutsche Telekom’s combined income tax rate for 2017 amounts to 31.4 percent (2016: 31.1 percent; 2015: 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 (2016: 436 percent; 2015: 436 percent).

Reconciliation of the effective tax rate. Income taxes of EUR 558 million (as benefit) in the reporting year, 2016: EUR -1,443 million (as expense), 2015: EUR –1,276 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 €
    2017 2016 2015
Profit before income taxes   4,994 4,547 4,778
Expected income tax expense (benefit) (income tax rate applicable to Deutsche Telekom AG: 2017: 31.4 %, 2016: 31.1 %, 2015: 31.1 %)   1,568 1,414 1,486
Adjustments to expected tax expense (benefit)        
Effect of changes in statutory tax rates   (2,738) (49) (3)
Tax effects from prior years   (132) (58) (112)
Tax effects from other income taxes   (141) 122 70
Non-taxable income   (329) (75) (154)
Tax effects from equity investments   (81) (850) (191)
Non-deductible expenses   591 790 98
Permanent differences   83 158 (27)
Goodwill impairment losses   620 133 (12)
Tax effects from loss carryforwards   (11) (237) 34
Tax effects from additions to and reductions of local taxes   72 59 65
Adjustment of taxes to different foreign tax rates   (59) 26 24
Other tax effects   (1) 10 (2)
Income tax (benefit) expense according to the con-solidated income statement   (558) 1,443 1,276
Effective income tax rate % (11) 32 27

Current income taxes in the consolidated income statement
The following table provides a breakdown of current income taxes:

millions of €
  2017 2016 2015
Current income taxes 569 468 249
Of which: Current tax expense 741 494 347
Prior-period tax expense (172) (26) (98)

Deferred taxes in the consolidated income statement
Deferred taxes developed as follows:

millions of €
  2017 2016 2015
Deferred tax expense (benefit) (1,127) 975 1,027
Of which: From temporary differences (765) 567 154
From loss carryforwards (381) 339 917
From tax credits 19 69 (44)

Income taxes in the consolidated statement of financial position

Current income taxes in the consolidated statement of financial position:

millions of €
  Dec. 31, 2017 Dec. 31, 2016
Recoverable taxes 236 218
Tax liabilities (224) (222)
     
Current taxes recognized in other comprehensive income: Hedging instruments (267) (203)

Deferred taxes in the consolidated statement of financial position:

millions of €
  Dec. 31, 2017 Dec. 31, 2016
Deferred tax assets 4,013 5,210
Deferred tax liabilities (6,967) (10,007)
  (2,954) (4,797)
Of which: Recognized in other comprehensive income: Gain (loss) from the remeasurement of defined benefit plans 1,280 1,300
Revaluation surplus
Hedging instruments 17 10
Recognized in other comprehensive income before non-controlling interests 1,297 1,310
Non-controlling interests (12) (12)
  1,285 1,298

Development of deferred taxes:

millions of €
  Dec. 31, 2017 Dec. 31, 2016
Deferred taxes recognized in the statement of financial position (2,954) (4,797)
Difference to prior year 1,843 (840)
Of which: Recognized in income statement 1,127 (975)
Recognized in other comprehensive income (13) 257
Recognized in capital reserves (56) 96
Acquisitions (disposals) (including assets and disposal groups held for sale) 11 2
Currency translation adjustments 774 (220)

Development of deferred taxes on loss carryforwards:

millions of €
  Dec. 31, 2017 Dec. 31, 2016
Deferred taxes on loss carryforwards before allowances 2,251 2,357
Difference to prior year (106) (576)
Of which: Recognition (derecognition) 88 (538)
Acquisitions (disposals) (including assets and disposal groups held for sale) (6) (24)
Currency translation adjustments (188) (14)

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

millions of €
  Dec. 31, 2017 Dec. 31, 2016 a
  Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities
Current assets 1,255 (423) 1,124 (429)
Trade and other receivables 497 (132) 520 (130)
Inventories 100 (16) 82 (2)
Other assets 658 (275) 522 (297)
         
Non-current assets 2,964 (10,803) 3,297 (13,992)
Intangible assets 502 (6,339) 602 (8,803)
Property, plant and equipment 636 (3,236) 772 (3,129)
Other financial assets 1,826 (1,228) 1,923 (2,060)
         
Current liabilities 925 (613) 1,364 (630)
Financial liabilities 206 (384) 424 (371)
Trade and other payables 55 (11) 67 (40)
Other provisions 286 (58) 346 (53)
Other liabilities 378 (160) 527 (166)
         
Non-current liabilities 4,746 (2,859) 5,949 (3,172)
Financial liabilities 1,288 (1,249) 1,876 (1,669)
Provisions for pensions and other employee benefits 1,735 (1,398) 1,687 (1,292)
Other provisions 693 (187) 897 (179)
Other liabilities 1,030 (25) 1,489 (32)
         
Retained earnings   (67)  
         
Tax credits 236 290
Loss carryforwards 1,537 1,144
Interest carryforwards 148 258
         
Total 11,811 (14,765) 13,426 (18,223)
Of which: non-current 9,798 (13,738) 10,773 (17,124)
         
Netting (7,798) 7,798 (8,216) 8,216
         
Recognition 4,013 (6,967) 5,210 (10,007)
 
a Contrary to the previous presentation, Deutsche Telekom states the deferred taxes for each kind of deductible difference and tax loss carryforward as net amounts instead of as gross amounts as hitherto. The prior-year comparatives were adjusted retrospectively.

The loss carryforwards amount to:

millions of €
  Dec. 31, 2017 Dec. 31, 2016
Loss carryforwards for corporate income tax purposes 6,473 5,275
Expiry within    
1 year 89 147
2 years 29 121
3 years 55 46
4 years 18 55
5 years 711 32
After 5 years 3,629 2,444
Unlimited carryforward period 1,942 2,430

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

millions of €
  Dec. 31, 2017 Dec. 31, 2016
Loss carryforwards for corporate income tax purposes 1,034 1,407
Expiry within    
1 year 79 147
2 years 5 121
3 years 37 32
4 years 12 48
5 years 42 20
After 5 years 63 135
Unlimited carryforward period 796 904
     
Temporary differences in corporate income tax 665 490

In addition, no deferred taxes are recognized on trade tax loss carryforwards of EUR 19 million (December 31, 2016: EUR 33 million) and on temporary ­differences for trade tax purposes in the amount of EUR 5 million (December 31, 2016: EUR 3 million). Furthermore, apart from corporate income tax loss carryforwards, no deferred taxes amounting to EUR 522 million (December 31, 2016: EUR 817 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 6 million (December 31, 2016: EUR 34 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 25 million (2016: EUR 28 million; 2015: EUR 16 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 558 million (December 31, 2016: EUR 309 million) as it is unlikely that these differences will be reversed in the near future.

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

millions of €
  2017 2016 2015
  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 reclassified to the income statement retrospectively                  
Gain (loss) from the remeasurement of defined benefit plans 116 (19) 97 (660) 205 (455) 230 (60) 170
Share of profit (loss) of investments accounted for using the equity method 0 0 0 0 0 0 0 0 0
  116 (19) 97 (660) 205 (455) 230 (60) 170
Items reclassified to the income statement retrospectively, if certain reasons are given                  
Exchange differences on translating foreign operations                  
Recognition of other comprehensive income in income statement 0 0 0 (948) 0 (948) 4 (1) 3
Change in other comprehensive income (not recognized in income statement) (2,196) 0 (2,196) 395 0 395 2,000 0 2,000
Available-for-sale financial assets                  
Recognition of other comprehensive income in income statement 7 (2) 5 2,282 (1) 2,281 0 0 0
Change in other comprehensive income (not recognized in income statement) 27 0 27 (2,323) 0 (2,323) 31 0 31
Gains (losses) from hedging instruments                  
Recognition of other comprehensive income in income statement 450 (141) 309 328 (102) 226 (255) 79 (176)
Change in other comprehensive income (not recognized in income statement) (270) 85 (185) (457) 142 (315) 653 (205) 448
Share of profit (loss) of investments accounted for using the equity method                  
Recognition of other comprehensive income in income statement 0 0 0 7 0 7 0 0 0
Change in other comprehensive income (not recognized in income statement) 0 0 0 1 0 1 25 0 25
  (1,982) (58) (2,040) (715) 39 (676) 2,458 (127) 2,331
                   
Other comprehensive income (1,866) (77) (1,943) (1,375) 244 (1,131) 2,688 (187) 2,501
Profit (loss)     5,551     3,104     3,502
Total comprehensive income     3,608     1,973     6,003