7.5 Taxes on income
Domestic taxes on income, comparable taxes on income at foreign subsidiaries as well as deferred taxes in accordance with IAS 12 “Income Taxes” are recognised under this item.
The reader is referred to Section 3.2 “Summary of major accounting policies” regarding the basic approach to the recognition and measurement of deferred taxes.
The tax rate used to calculate the deferred taxes of the domestic companies was unchanged from the previous year at 31.93% (rounded to 32%). It is arrived at from the corporate income tax rate of 15.0%, the German reunification charge of 5.5% and a uniform trade earnings tax rate of 16.1%. The deferred taxes at the companies abroad were calculated using the applicable country-specific tax rates.
Tax-relevant bookings on the Group level are made using the Group tax rate of 32% unless they refer specifically to individual companies.
Deferred tax liabilities on profit distributions of significant affiliated companies are established in the year when they are received.
Breakdown of taxes on income
The breakdown of actual and deferred income taxes was as follows:
Income tax | ||
---|---|---|
in EUR thousand | 2012 | 2011 |
Actual tax for the year under review | 255,566 | 191,911 |
Actual tax for other periods | 5,262 | |
Deferred taxes due to temporary differences | 99,670 | 42,515 |
Deferred taxes from loss carry-forwards | 10,700 | (43,830) |
Change in deferred taxes due to changes in tax rates | (2,969) | (324) |
Total | 368,229 | 65,460 |
Domestic/foreign breakdown of recognised tax expenditure/income | ||
---|---|---|
in EUR thousand | 2012 | 2011 |
Current taxes | ||
Germany | 164,362 | 8,045 |
Outside Germany | 96,466 | 59,053 |
Deferred taxes | ||
Germany | 91,027 | 34,072 |
Outside Germany | 16,374 | |
Total | 368,229 | 65,460 |
The following table presents a breakdown of the deferred tax assets and liabilities into the balance sheet items from which they are derived.
Deferred tax assets and deferred tax liabilities of all Group companies | ||
---|---|---|
in EUR thousand | 2012 | 2011 |
1 Thereof on tax loss carry-forwards: -EUR 43,228 thousand (-EUR 42,760 thousand) 2 Including reinsurance recoverables on benefit reserve; previous year was adjusted pursuant to IAS 1 in an amount of EUR 38,174 thousand charged to the other technical provisions. |
||
Deferred tax assets | ||
Tax loss carry-forwards | 68,393 | 81,178 |
Loss and loss adjustment expense reserves | 285,396 | 271,615 |
Benefit reserve | 76,508 | 54,846 |
Other technical/non-technical provisions | 174,094 | 216,240 |
Funds withheld | 513,357 | 586,554 |
Deferred acquisition costs | 22,671 | 14,073 |
Accounts receivable/reinsurance payable | 3,809 | 7,156 |
Valuation differences relating to investments | 22,857 | 19,210 |
Contract deposits | 8,876 | 5,230 |
Other valuation differences | 51,447 | 64,927 |
Value adjustments1 | (43,228) | (43,203) |
Total | 1,184,180 | 1,277,826 |
Deferred tax liabilities | ||
Loss and loss adjustment expense reserves | 24,797 | 22,542 |
Benefit reserve2 | 526,348 | 553,381 |
Other technical/non-technical provisions | 52,805 | 87,485 |
Equalisation reserve | 1,040,561 | 933,711 |
Funds withheld | 27,961 | 39,951 |
Deferred acquisition costs | 342,640 | 372,436 |
Accounts receivable/reinsurance payable | 79,811 | 62,800 |
Valuation differences relating to investments | 381,555 | 174,914 |
Present value of future profits on acquired life reinsurance portfolios (PVFP) | 11,513 | 11,873 |
Other valuation differences | 48,069 | 59,110 |
Total | 2,536,060 | 2,318,203 |
Deferred tax liabilities | 1,351,880 | 1,040,377 |
The deferred tax assets and deferred tax liabilities are shown unoffset in the above table. The deferred taxes are recognised as follows in the balance sheet after appropriate netting:
Netting of deferred tax assets and deferred tax liabilities | ||
---|---|---|
in EUR thousand | 2012 | 2011 |
Deferred tax assets | 620,493 | 682,888 |
Deferred tax liabilities | 1,972,373 | 1,723,265 |
Net deferred tax liabilities | 1,351,880 | 1,040,377 |
The actual and deferred taxes recognised directly in shareholders’ equity in the financial year increased by -EUR 174.5 million to -EUR 207.3 million (-EUR 32.8 million) against the backdrop of unrealised gains and losses on investments.
The following table presents a reconciliation of the expected expense for income taxes with the actual expense for income taxes reported in the statement of income. The pre-tax result is multiplied by the Group tax rate in order to calculate the Group’s expected expense for income taxes.
Reconciliation of the expected expense for income taxes with the actual expense | ||
---|---|---|
in EUR thousand | 2012 | 2011 |
Profit before income taxes | 1,301,952 | 742,248 |
Expected tax rate | 32% | 32% |
Expected expense for income taxes | 416,625 | 237,519 |
Change in deferred tax rates | (2,969) | (324) |
Taxation differences affecting subsidiaries | (85,664) | (37,199) |
Non-deductible expenses | 67,002 | 56,022 |
Tax-exempt income | (26,747) | (66,664) |
Tax income not attributable to the reporting period | 3,788 | (127,547) |
Other | (3,806) | 3,653 |
Actual expense for income taxes | 368,229 | 65,460 |
The tax burden in the 2012 financial year rose sharply year-on-year by EUR 302.8 million to EUR 368.2 million (EUR 65.5 million). The increase can be attributed partly to a higher pre-tax profit in the year under review and partly to tax refunds in the previous year based on a decision of the Federal Fiscal Court (BFH) from 2010 regarding the taxation of investment income generated by the Group’s reinsurance subsidiaries domiciled in Ireland as foreign-sourced income. The tax ratio amounted to 28.3% (8.8%).
Availability of non-capitalised loss carry-forwards
Unused tax loss carry-forwards of EUR 233.7 million (EUR 286.9 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 152.4 million (EUR 151.5 million) thereof was not capitalised since realisation is not sufficiently certain.
No deferred taxes were established on assets-side taxable temporary differences amounting to EUR 107.5 million (EUR 38.9 million) and liabilities-side temporary differences of EUR 70.7 million (EUR 108.2 million) in connection with interests in Group companies because the Hannover Re Group can control their reversal and will not reverse them in the foreseeable future.
Availability of loss carry-forwards that have not been capitalised:
Expiry of non-capitalised loss carry-forwards | |||||
---|---|---|---|---|---|
in EUR thousand | One to five years |
Six to ten years |
More than ten years |
Unlimited | Total |
Loss carry-forwards | – | 1,431 | – | 150,980 | 152,411 |
Total | – | 1,431 | – | 150,980 | 152,411 |