36 » Income Taxes
adidas AG and its German subsidiaries are subject to German corporate and trade taxes. For the years ending December 31, 2019 and 2018, the statutory corporate income tax rate of 15% plus a surcharge of 5.5% thereon is applied to earnings. The municipal trade tax is approximately 11.4% of taxable income.
For non-German subsidiaries, deferred taxes are calculated based on tax rates that have been enacted or substantively enacted by the closing date.
Deferred tax assets and liabilities
Deferred tax assets and liabilities are offset if they relate to the same fiscal authority. The following deferred tax assets and liabilities, determined after appropriate offsetting, are presented in the consolidated statement of financial position:
|
|
Dec. 31, 2019 |
|
Dec. 31, 2018 |
|---|---|---|---|---|
Deferred tax assets |
|
1,093 |
|
651 |
Deferred tax liabilities |
|
(280) |
|
(241) |
Deferred tax assets, net |
|
813 |
|
410 |
The movement of deferred taxes is as follows:
|
|
2019 |
|
2018 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||
Deferred tax assets, net as at January 1 |
|
410 |
|
440 |
||||||||
Deferred tax income |
|
355 |
|
4 |
||||||||
Change in consolidated companies1 |
|
(2) |
|
– |
||||||||
Change in deferred taxes attributable to remeasurements of defined benefit plans recorded in other comprehensive income2 |
|
18 |
|
6 |
||||||||
Change in deferred taxes attributable to the change in the effective portion of the fair value of qualifying hedging instruments recorded in other comprehensive income3 |
|
27 |
|
(43) |
||||||||
Change in deferred taxes attributable to the implementation of IFRS 9 |
|
– |
|
1 |
||||||||
Change in deferred taxes attributable to the implementation of IFRS 15 |
|
– |
|
8 |
||||||||
Currency translation differences |
|
5 |
|
(6) |
||||||||
Deferred tax assets, net as at December 31 |
|
813 |
|
410 |
||||||||
Gross company deferred tax assets and liabilities after valuation allowances, but before appropriate offsettings, are attributable to the items detailed in the table below:
|
|
Dec. 31, 2019 |
|
Dec. 31, 2018 |
|---|---|---|---|---|
Non-current assets |
|
462 |
|
182 |
Current assets |
|
292 |
|
182 |
Liabilities and provisions |
|
1,018 |
|
311 |
Accumulated tax loss carry-forwards |
|
80 |
|
14 |
Deferred tax assets |
|
1,852 |
|
689 |
Non-current assets |
|
888 |
|
206 |
Current assets |
|
69 |
|
49 |
Liabilities and provisions |
|
82 |
|
24 |
Deferred tax liabilities |
|
1,039 |
|
279 |
Deferred tax assets, net |
|
813 |
|
410 |
Deferred tax assets are recognized only to the extent that the realization of the related benefit is probable. For the assessment of probability, in addition to past performance and the respective prospects for the foreseeable future, appropriate tax structuring measures are also taken into consideration.
Deferred tax assets on liabilities and provisions, and deferred tax liabilities on non-current assets increased significantly in 2019 due to the initial application of IFRS 16. Deferred tax assets on non-current assets increased significantly due to an increase in the tax base of non-current assets relating to an internal reorganization.
Deferred tax assets for which the realization of the related tax benefits is not probable decreased from € 554 million to € 488 million for the year ending December 31, 2019. These amounts mainly relate to tax losses carried forward and unused foreign tax credits of the US tax group, which begin to expire in 2028. The remaining unrecognized deferred tax assets relate to subsidiaries operating in markets where the realization of the related tax benefit is not considered probable.
adidas does not recognize deferred tax liabilities for unremitted earnings of non-German subsidiaries to the extent that they are expected to be permanently invested in international operations. These earnings, the amount of which cannot be practicably computed, could become subject to additional tax if they were remitted as dividends or if the company were to sell its shareholdings in the subsidiaries.
Tax expenses
Tax expenses are split as follows:
|
|
Year ending Dec. 31, 2019 |
|
Year ending Dec. 31, 2018 |
|---|---|---|---|---|
Current tax expenses |
|
996 |
|
673 |
Deferred tax income |
|
(355) |
|
(4) |
Income tax expenses |
|
640 |
|
669 |
The deferred tax income includes tax income of € 388 million in total (2018: € 52 million) related to the origination and reversal of temporary differences.
In 2019, current and deferred tax expense/income includes impacts relating to an internal reorganization.
The company’s applicable tax rate is 27.4% (2018: 30%), being the applicable income tax rate of adidas AG. The comparative information for 2018 in the table below has been restated based on the applicable tax rate of 27.4%.
The company’s effective tax rate differs from the applicable tax rate of 27.4% as follows:
|
|
Year ending Dec. 31, 2019 |
|
Year ending Dec. 31, 2018 |
||||
|---|---|---|---|---|---|---|---|---|
|
|
€ in millions |
|
in % |
|
€ in millions |
|
in % |
Expected income tax expenses |
|
700 |
|
27.4 |
|
651 |
|
27.4 |
Tax rate differentials |
|
(119) |
|
(4.6) |
|
(116) |
|
(4.9) |
Non-deductible expenses |
|
26 |
|
1.0 |
|
27 |
|
1.2 |
Losses for which benefits were not recognizable and changes in valuation allowances |
|
(53) |
|
(2.1) |
|
(29) |
|
(1.2) |
Changes in tax rates |
|
3 |
|
0.1 |
|
3 |
|
0.1 |
Other, net |
|
1 |
|
0.0 |
|
0 |
|
0.0 |
|
|
557 |
|
21.8 |
|
537 |
|
22.6 |
Withholding tax expenses |
|
83 |
|
3.2 |
|
132 |
|
5.6 |
Income tax expenses |
|
640 |
|
25.0 |
|
669 |
|
28.1 |
In 2019, the effective tax rate was 25.0%. The effective tax rate in 2018 was 28.1%.
The line item ‘Non-deductible expenses’ includes tax expense/benefits relating to tax-free income, movements in provisions for uncertain tax positions, tax expense relating to prior periods and tax expense relating to an internal reorganization.
In 2019, the tax expense relating to prior periods is € 134 million (2018: benefit of € 69 million).
For 2019, the line item ‘Losses for which benefits were not recognizable and changes in valuation allowances’ mainly relates to the release of valuation allowances in respect of the US, Canada, and Brazil (€ 56 million), and an increase in the valuation allowance in Argentina (€ 3 million). For 2018, this line item mainly related to changes in valuation allowances for the US, Canada, and Argentina.
For 2019, the total tax benefit arising from previously unrecognized tax losses, credits or temporary differences in prior years that is used to reduce current tax expense was € 26 million, mainly relating to the US, Canada and Brazil (2018: € 39 million).
For 2019, the line item ‘Changes in tax rates’ mainly reflects tax rate reductions in India and Greece. For 2018, this line item mainly reflected tax rate reductions in France and Argentina.