7.5 Taxes and deferred taxes
Deferred tax assets and liabilities are booked in accordance with IAS 12 for tax reductions and additional tax charges expected in subsequent financial years, insofar as they result from different valuations of individual balance sheet items. In principle, such valuation differences may arise between the national tax balance sheet and the national commercial balance sheet, the uniform consolidated balance sheet and the national commercial balance sheet as well as from tax loss carry-forwards and tax credits. Deferred tax assets and liabilities were not constituted on temporary differences in conjunction with interests in subsidiaries and associated companies.
In July 2007 the German Federal Council approved the Business Tax Reform Act 2008. Among other things, this led to a reduction in tax rates for corporations domiciled in Germany effective 1 January 2008. Consequently, the tax expenditure for the previous year recognised non-recurring income from this revaluation in an amount of EUR 191.5 million for the parent company Hannover Re and E+S Rückversicherung AG.
Deferred taxes at the Group level were booked using the Group tax rate of 32%.
Breakdown of actual and deferred income taxes:
Excel download (18 KB)Income tax
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Actual tax for the year under review | 181,395 | 219,727 |
| Actual tax for other periods | 30,298 | 54,991 |
| Deferred taxes due to temporary differences | 13,216 | (46,377) |
| Deferred taxes from loss carry-forwards | (18,269) | 12,364 |
| Change in deferred taxes due to changes in tax rates | (1,030) | (193,253) |
| Recognised tax expenditure | 205,610 | 47,452 |
Domestic/foreign breakdown of recognised tax expenditure/income
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Current taxes | ||
| Germany | 159,797 | 214,538 |
| Outside Germany | 51,895 | 60,180 |
| Deferred taxes | ||
| Germany | (4,124) | (282,152) |
| Outside Germany | (1,958) | 54,886 |
| Total | 205,610 | 47,452 |
The following table presents a breakdown of the deferred tax assets and liabilities into the balance sheet items from which they are derived.
Excel download (20 KB)Deferred tax assets and deferred tax liabilities of all Group companies
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Deferred tax assets | ||
| Tax loss carry-forwards | 88,809 | 74,422 |
| Loss and loss adjustment expense reserves | 138,699 | 244,360 |
| Benefit reserve | 223,418 | 147,626 |
| Other provisions | 54,227 | 46,495 |
| Accounts receivable | 84,280 | 83,232 |
| Funds held | 513 | – |
| Valuation differences relating to investments | 50,077 | 35,670 |
| Contract deposits | 1,465 | 34,108 |
| Other valuation differences | 27,835 | 21,550 |
| Value adjustments | (120,177) | (109,732) |
| Total | 549,146 | 577,731 |
| Deferred tax liabilities | ||
| Loss and loss adjustment expense reserves | 2,388 | 3,655 |
| Benefit reserve | 22,386 | 53,456 |
| Other technical/non-technical provisions | 10,778 | 15,054 |
| Equalisation reserve | 680,915 | 679,732 |
| Funds held | 3,675 | 13,924 |
| Deferred acquisition costs | 389,580 | 367,847 |
| Accounts receivable / reinsurance payable | 119,698 | 113,018 |
| Valuation differences relating to investments | 128,380 | 96,642 |
| Other valuation differences | 13,789 | 7,351 |
| Total | 1,371,589 | 1,350,679 |
| Deferred tax liabilities | 822,443 | 772,948 |
Value adjustments on deferred tax assets were recognised separately for the first time in the year under review. The figures for the previous year were adjusted accordingly.
The actual and deferred taxes recognised directly in shareholders' equity at the end of the financial year amounted to -EUR 53.5 million (EUR 2.5 million). They resulted from items that were charged or credited directly to equity.
Please refer to Section 3.2 "Summary of major accounting policies" regarding the recognition and measurement of deferred tax assets and liabilities.
The following table presents a reconciliation of the expected expense for income taxes with the actual provision 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. The Group tax rate used is rounded to take account of the corporate income tax rate including the German reunification charge levied on corporate income tax as well as trade earnings tax.
Excel download (19 KB)Reconciliation of the expected expense for income taxes with the actual expense
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Profit before income taxes | 70,626 | 850,402 |
| Expected tax rate | 32% | 40% |
| Expected expense for income taxes | 22,600 | 340,161 |
| Changes in tax rates | (1,023) | (193,253) |
| Taxation differences affecting foreign subsidiaries | (44,909) | (73,906) |
| Non-deductible expenses | 132,251 | 39,143 |
| Tax-exempt income | 45,712 | (74,328) |
| Tax expense not attributable to the reporting period | 31,793 | 56,073 |
| Utilisation of previously adjusted loss carry-forwards | – | (61,309) |
| Other | 19,186 | 14,871 |
| Actual expense for income taxes | 205,610 | 47,452 |
Unused tax loss carry-forwards of EUR 292.0 million (EUR 230.3 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 249.6 million (EUR 210.2 million) thereof was not capitalised since realisation is not sufficiently certain.
In addition, available tax credits of EUR 20.3 million (EUR 17.2 million) were not capitalised.
Excel download (19 KB)Availability of loss carry-forwards and tax credits that have not been capitalised
| Figures in EUR thousand | One to five years | Six to ten years | More than ten years | Unlimited | Total |
|---|---|---|---|---|---|
| Loss carry-forwards | – | – | 138,667 | 110,941 | 249,608 |
| Tax credits | – | – | – | 20,300 | 20,300 |
| Total | – | – | 138,667 | 131,241 | 269,908 |