1.6 Income taxes
Income tax expense
| in CHF mn | 2023 | 2022 | ||
|---|---|---|---|---|
| Current income taxes | 24.8 | 28.0 | ||
| Deferred income taxes | (8.5) | (15.8) | ||
| Total | 16.3 | 12.2 |
Analysis of tax expense
| in CHF mn | 2023 | 2022 | ||
|---|---|---|---|---|
| Income / (loss) before taxes (EBT) | 76.7 | 8.2 | ||
| Weighted average income tax rate | 21.0% | 25.2% | ||
| Expected tax expense (using weighted average tax rates) | 16.1 | 2.1 | ||
| Credits and income taxes incurred from previous periods | 0.2 | (0.7) | ||
| Use of previously unrecognised loss carryforwards | (0.2) | (0.6) | ||
| Unrecognised deferred tax assets on tax loss carryforwards | 4.4 | 1.3 | ||
| Impact of Swiss participation exemption and other non-taxable items | 1.6 | 2.5 | ||
| Expenses not deductible from tax and income not credited to the income statement | (0.0) | – | ||
| Change in deferred taxes due to change in tax rates | (0.2) | (0.6) | ||
| Tax effects on investments | (5.7) | 8.5 | ||
| Other impacting items | 0.1 | (0.4) | ||
| Income taxes | 16.3 | 12.2 | ||
| Effective tax rate | 21.3% | 149.2% |
The expected average tax rate equals the weighted average of the rates of the consolidated companies. Both positive and negative results for the individual companies feed into the calculation for the expected tax rate, taking into account the applicable tax rates in each case.
The effective tax rate changed from 149.2 per cent to 21.3 per cent. The difference compared with the expected tax rate was mainly due to unrecognised deferred tax assets on tax loss carryforwards, the impact of the Swiss participation exemption and other non-taxable items as well as the tax effects on investments.
Unrecognised deferred tax assets on tax loss carryforwards result from the estimate that, based on their income situation, the relevant companies do not fulfil the prerequisites for the realisation of losses. The tax effects on investments include tax-neutral changes in value arising from the reassessment of investments in associates / joint ventures and the impact resulting from value allowances and reversals of value allowances on investments under commercial law (without any deferred tax consequences), and also decreased tax expenses for 2023. In 2023, the impact of the Swiss participation exemption and other non-taxable items was largely associated with the participation exemption on dividends from subsidiaries. In 2022, the impact was attributable to the elimination (without any deferred tax consequences) of accountable taxable sales proceeds.
On 8 October 2021, 136 countries agreed on a two-pillar concept for international tax reform (the OECD Inclusive Framework). The recommendations under the first pillar of the Inclusive Framework include a reallocation of part of the taxes to the market countries, while the second (Pillar II) sets the objective of a global effective minimum tax rate (ETR) of 15 per cent. TX Group falls within the scope of Pillar II of the OECD Inclusive Framework.
Both Switzerland and other countries where TX Group is active are introducing global minimum taxation (Pillar II) for financial years beginning on or after 1 January 2024. In Switzerland, the levying of a national top-up tax from 1 January 2024 (for financial years beginning on or after 1 January 2024) is taking effect with the introduction of the Ordinance on the Minimum Taxation of Large Corporate Groups (Minimum Taxation Ordinance). Implementation of the other elements of the Pillar II rules, i.e. the international top-up tax in accordance with the Income Inclusion Rule (IIR) and the international top-up tax in accordance with the Undertaxed Profits Rule (UTPR), will occur at a later time.
Since any local legislation regarding global minimum taxation is only effective from 1 January 2024, TX Group has no current related tax risk and is applying the amendment to IAS 12, as published by the IASB on 23 May 2023, with an exemption being introduced for the showing and disclosure of information on deferred tax claims and liabilities associated with Pillar II income taxes.
In accordance with the Pillar II rules, TX Group is obliged to pay a top-up tax for the difference between its effective GloBE tax rate for each country and the minimum rate of 15 per cent. Most TX Group companies have an effective tax rate of over 15 per cent, with the exception of companies active in the Swiss cantons of Basel-Stadt, Geneva, Vaud and Zug. Thus, TX Group may be subject to a top-up tax in accordance with the second pillar.
TX Group is in the process to assess whether and to what extent the introduction of the Pillar II rules will require TX Group to pay a top-up tax from 2024. The effective tax rate for 2023 is 21.3 per cent. Even if the effective tax rate in individual countries were below 15 per cent, TX Group would not be automatically obliged to pay a top-up tax. This is due to the effects of specific adjustments which are envisaged under the Pillar II rules and lead to other effective tax rates than those calculated in accordance with IAS 12.
Given the complexity of applying the legislation and calculating both the GloBE income and the GloBE ETR, the information available as of 31 December 2023 was still insufficient for the purposes of estimating the potential quantitative effects.
Deferred tax assets and liabilities
| in CHF mn | 2023 | 2022 | ||
|---|---|---|---|---|
| Property, plant and equipment | 0.0 | 0.0 | ||
| Employee benefit obligations | 3.2 | 1.1 | ||
| Intangible assets | – | 0.0 | ||
| Capitalised tax loss carryforwards | 12.9 | 11.8 | ||
| Lease liabilities | 40.8 | 26.7 | ||
| Other balance sheet items | 0.1 | 0.2 | ||
| Total deferred tax assets, gross | 57.0 | 39.8 | ||
| Trade accounts receivable | (1.1) | (1.1) | ||
| Property, plant and equipment | (12.7) | (13.9) | ||
| Right-of-use assets | (39.7) | (25.9) | ||
| Financial assets | (0.1) | (0.1) | ||
| Employee benefit plan assets | (14.4) | (5.8) | ||
| Intangible assets | (75.4) | (76.1) | ||
| Provisions | (2.7) | (2.7) | ||
| Other balance sheet items | (0.4) | (0.5) | ||
| Total deferred tax liabilities, gross | (146.4) | (126.0) | ||
| Total deferred taxes, net | (89.4) | (86.2) | ||
| of which deferred tax assets stated in the balance sheet | 8.1 | 10.5 | ||
| of which deferred tax liablities stated in the balance sheet | (97.5) | (96.7) |
The change in deferred taxes is shown in the following table:
| in CHF mn | 2023 | 2022 | ||
|---|---|---|---|---|
| As of 1 January | (86.2) | (153.4) | ||
| Change in group of consolidated companies | (4.8) | – | ||
| Deferred tax income | 8.5 | 15.8 | ||
| Taxes on other comprehensive income | (6.5) | 51.0 | ||
| Currency translation differences | (0.5) | 0.5 | ||
| As of 31 December | (89.4) | (86.2) |
Tax loss carryforwards
| in CHF mn | 2023 | 2022 | ||
|---|---|---|---|---|
| Capitalised tax loss carryforwards | 12.9 | 11.8 | ||
| Weighted average income tax rate | 17.3% | 16.4% | ||
| Corresponding to effective tax loss carryforwards | (74.8) | (71.8) | ||
| Due after 1 year | – | – | ||
| Due after 2 to 5 years | (39.8) | (18.5) | ||
| Due after more than 5 years | (35.0) | (53.3) |
As of 31 December 2023, (net) deferred tax assets of CHF 7.2 million (previous year: CHF 3.3 million) had been capitalised for companies that suffered losses in this or the previous year.
| in CHF mn | 2023 | 2022 | ||
|---|---|---|---|---|
| Non-capitalised tax loss carryforwards | (55.9) | (23.8) | ||
| Due after 1 year | (0.2) | – | ||
| Due after 2 to 5 years | (24.5) | – | ||
| Due after more than 5 years | (31.2) | (23.8) |
Significant judgements or estimates
Uncertainties with regard to correct treatment of income tax may result in definitive tax assessments only being available several years after the reporting year. Before this assessment by the tax authorities, an income tax assessment must be performed at the time of the financial statements’ publication. The uncertainty determined corresponds with either the expected value or the most likely value depending on which value best reflects the uncertainty.
Accounting policies
Current income taxes are recognised in the period to which they relate on the basis of the local net income / (loss) reported by the consolidated companies in the reporting year.
Deferred tax liabilities resulting from measurement differences between tax and consolidated values are calculated and recognised using the liability method. In the process, all temporary differences between the values included in the tax returns and those in the consolidated financial statements are taken into consideration. The tax rates used are the anticipated local tax rates. Depending on the underlying transaction, any change in deferred taxes is either recognised in the income statement in net income / (loss) or directly in other comprehensive income as equity.
Deferred tax loss carryforwards and deferred taxes arising from temporary differences are only capitalised if it is likely that gains will be realised in future that would allow the loss carryforwards or the deductible differences to be offset for tax purposes.