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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 (124,812)
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 (35,710)
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
Six to ten
More than
ten years
Unlimited Total
Loss carry-forwards 1,431 150,980 152,411
Total 1,431 150,980 152,411


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