Annual Report 2022

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35 » Income Taxes

adidas AG and its German subsidiaries are subject to German corporate and trade taxes. For the years ending December 31, 2022 and 2021, 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:

  • the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and
  • the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:
    • the same taxable entity; or
    • different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

As a result they are presented in the consolidated statement of financial position as follows:

Deferred tax assets/liabilities € in millions

 

 

Dec. 31, 2022

 

Dec. 31, 2021

Deferred tax assets

 

1,216

 

1,263

Deferred tax liabilities

 

(135)

 

(122)

Deferred tax assets, net

 

1,082

 

1,141

The movement of deferred taxes net is as follows:

Movement of deferred taxes € in millions

 

 

2022

 

2021

Deferred tax assets, net as at January 1

 

1,141

 

992

Deferred tax income

 

(76)

 

(112)

Change in consolidated companies

 

23

 

Reclassification to assets/liabilities classified as held for sale

 

 

278

Change in deferred taxes attributable to remeasurements of defined benefit plans recorded in other comprehensive income1

 

(44)

 

(13)

Change in deferred taxes attributable to the change in the effective portion of the fair value of qualifying hedging instruments recorded in other comprehensive income2

 

21

 

(26)

Currency translation differences

 

17

 

22

Deferred tax assets, net as at December 31

 

1,082

 

1,141

1

See Note 23.

2

See Note 28.

Gross company deferred tax assets and liabilities after valuation allowances, but before appropriate offsetting, are attributable to the items detailed in the table below:

Deferred taxes € in millions

 

 

Dec. 31, 2022

 

Dec. 31, 2021

Non-current assets

 

462

 

460

Current assets

 

245

 

235

Liabilities and provisions

 

852

 

953

Accumulated tax loss carry-forwards

 

126

 

178

Deferred tax assets

 

1,685

 

1,826

Non-current assets

 

421

 

527

Current assets

 

71

 

114

Liabilities and provisions

 

111

 

44

Deferred tax liabilities

 

603

 

685

Deferred tax assets, net

 

1,082

 

1,141

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 for which the realization of the related tax benefits is not probable increased from € 222 million to € 406 million for the year ending December 31, 2022. These amounts mainly relate to tax losses carried forward and unused tax credits of the US tax group, which begin to expire in 2029. 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:

Income tax expenses € in millions

 

 

Year ending Dec. 31, 2022

 

Year ending Dec. 31, 2021

Current tax expenses

 

156

 

377

Deferred tax income

 

(23)

 

(17)

Income tax expenses

 

134

 

360

The deferred tax income includes tax expense of € 6 million in total (2021: tax income of € 5 million) related to the origination and reversal of temporary differences.

The company’s applicable tax rate is 27.4% (2021: 27.4%), being the applicable income tax rate of adidas AG.

The company’s effective tax rate differs from the applicable tax rate of 27.4% as follows:

Tax rate reconciliation

 

 

Year ending Dec. 31, 2022

 

Year ending Dec. 31, 2021

 

 

€ in millions

 

in %

 

€ in millions

 

in %

Expected income tax expenses

 

106

 

27.4

 

507

 

27.4

Tax rate differentials

 

(59)

 

(15.1)

 

(155)

 

(8.4)

Non-deductible expenses

 

(160)

 

(41.2)

 

(7)

 

(0.4)

Losses for which benefits were not recognizable and changes in valuation allowances

 

251

 

64.6

 

(38)

 

(2.0)

Changes in tax rates

 

(7)

 

(1.7)

 

2

 

0.1

Other, net

 

(3)

 

(0.6)

 

(4)

 

(0.2)

Withholding tax expenses

 

5

 

1.2

 

55

 

3.0

Income tax expenses

 

134

 

34.5

 

360

 

19.4

In 2022, the effective tax rate was 34.5%. The effective tax rate in 2021 was 19.4%.

The line item ‘Non-deductible expenses’ includes tax expense/benefits relating to tax-free income, movements in provisions for uncertain tax positions and tax expense/benefits relating to prior periods. In 2022, the tax benefit relating to prior periods is € 118 million (2021: tax income of € 57 million).

For 2022, the line item ‘Losses for which benefits were not recognizable and changes in valuation allowances’ mainly relates to valuation allowances in respect of the US, Russia and Argentina (€ 278 million) and a release to the valuation allowance in Brazil (€ 31 million). For 2021, this line item mainly related to changes in valuation allowances for the US, Argentina, Brazil and Hong Kong.

For 2022, 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 € 5 million, mainly relating to the US (2021: € 15 million).

For 2022, the line item ‘Changes in tax rates’ mainly reflects a tax rate increase in Switzerland. For 2021, this line item mainly reflected tax rate reduction in Argentina, France and Switzerland.

Performance
Under the ‘Performance’ category, we subsume all footwear, apparel and ‘accessories and gear’ products which are of a more technical nature, built for sport and worn for sport. These are, among others, products from our most important sport categories: Football, Training, Running, and Outdoor.