7.5 Taxes on income
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” and deferred tax assets and liabilities 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 | 2013 | 20121 |
| Actual tax for the year under review | 131,873 | 255,566 |
| Actual tax for other periods | (39,069) | 5,262 |
| Deferred taxes due to temporary differences | 82,053 | 95,846 |
| Deferred taxes from loss carry-forwards | (29,051) | 10,139 |
| Change in deferred taxes due to changes in tax rates | (6,739) | (2,969) |
| Value adjustments on deferred taxes | 24,076 | 561 |
| Total | 163,143 | 364,405 |
| 1 Adjusted pursuant to IAS 8 (cf. Section 3.1) | ||
| Domestic/foreign breakdown of recognised tax expenditure/income | ||
|---|---|---|
| in EUR thousand | 2013 | 20121 |
| Current taxes | ||
| Germany | 9,015 | 164,362 |
| Outside Germany | 83,790 | 96,466 |
| Deferred taxes | ||
| Germany | 91,174 | 90,807 |
| Outside Germany | (20,836) | 12,770 |
| Total | 163,143 | 364,405 |
| 1 Adjusted pursuant to IAS 8 (cf. Section 3.1) | ||
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 | 2013 | 20121 |
| Deferred tax assets | ||
| Tax loss carry-forwards | 90,467 | 68,393 |
| Loss and loss adjustment expense reserves | 200,328 | 285,396 |
| Benefit reserve | 43,071 | 76,508 |
| Other technical/non-technical provisions | 341,699 | 174,057 |
| Funds withheld | 948,054 | 513,357 |
| Deferred acquisition costs | 30,547 | 22,671 |
| Accounts receivable/reinsurance payable | 15,472 | 3,809 |
| Valuation differences relating to investments | 13,740 | 22,857 |
| Contract deposits | 19 | 8,876 |
| Other valuation differences | 33,926 | 51,447 |
| Value adjustments2 | (64,600) | (43,228) |
| Total | 1,652,723 | 1,184,143 |
| Deferred tax liabilities | ||
| Loss and loss adjustment expense reserves | 27,711 | 24,797 |
| Benefit reserve | 880,026 | 526,348 |
| Other technical/non-technical provisions | 86,101 | 52,805 |
| Equalisation reserve | 1,046,733 | 1,040,561 |
| Funds withheld | 183,751 | 27,961 |
| Deferred acquisition costs | 319,989 | 342,640 |
| Accounts receivable/reinsurance payable | 86,681 | 79,811 |
| Valuation differences relating to investments | 199,532 | 381,555 |
| Present value of future profits on acquired life reinsurance portfolios (PVFP) | 10,659 | 11,513 |
| Other valuation differences | 15,091 | 35,769 |
| Total | 2,856,274 | 2,523,760 |
| Deferred tax liabilities | 1,203,551 | 1,339,617 |
| 1 Adjusted pursuant to IAS 8 (cf. Section 3.1) 2 Thereof on tax loss carry-forwards: -EUR 45,551 thousand (-EUR 43,228 thousand) | ||
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 | 2013 | 20121 |
| Deferred tax assets | 508,841 | 620,456 |
| Deferred tax liabilities | 1,712,392 | 1,960,073 |
| Net deferred tax liabilities | 1,203,551 | 1,339,617 |
| 1 Adjusted pursuant to IAS 8 (cf. Section 3.1) | ||
In view of the unrealised losses from investments and currency translation recognised directly in equity in the financial year, actual and deferred tax income – including amounts attributable to non-controlling interests – of EUR 217.8 million (previous year: tax expense of EUR 200.5 million) was also recognised directly in equity.
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 | 2013 | 20121 |
| Profit before taxes on income | 1,102,392 | 1,289,394 |
| Group tax rate | 32% | 32% |
| Expected expense for income taxes | 352,765 | 412,606 |
| Change in tax rates | (6,739) | (2,969) |
| Differences in tax rates affecting subsidiaries | (85,929) | (85,469) |
| Non-deductible expenses | 20,402 | 67,002 |
| Tax-exempt income | (152,066) | (26,747) |
| Tax expense/income not attributable to the reporting period | 5,233 | 3,788 |
| Value adjustments on deferred taxes/loss carry-forwards | 24,077 | 560 |
| Other | 5,400 | (4,366) |
| Actual expense for income taxes | 163,143 | 364,405 |
| 1 Adjusted pursuant to IAS 8 (cf. Section 3.1) | ||
The expense for income taxes in the financial year fell sharply year-on-year by EUR 201.3 million to EUR 163.1 million (EUR 364.4 million). The decrease is due in large measure to a lower pre-tax profit in the year under review as well as to the prospective adjustment of deferred taxes on the portion of the equalisation reserve attributable to permanent establishments of Hannover Rück SE that are tax-exempt under double taxation agreements (cf. here Section 3.1 “Changes in accounting policies”). In addition, the larger volume of internal retrocessions within the Group of certain portfolios in life and health reinsurance , which results in tax-exempt income in the country of origin but gives rise to expenses that are allowable for tax purposes in Germany, contributed to a reduction in the tax burden. The tax ratio amounted to 14.8% (28.3%).
Availability of non-capitalised loss carry-forwards
Unused tax loss carry-forwards and tax credits of EUR 321.8 million (EUR 233.7 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 172.5 million (EUR 152.4 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 108.4 million (EUR 107.5 million) and liabilities-side temporary differences of EUR 36.6 million (EUR 70.7) 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 | – | 1,057 | – | 158,729 | 159,786 |
| Tax credits | – | – | – | 12,750 | 12,750 |
| Total | – | 1,057 | – | 171,479 | 172,536 |