14Income taxes

millions of CHF

 

2022

 

2021

Current income tax expenses

 

–76.3

 

–86.4

Deferred income tax (expenses) income

 

–2.7

 

29.1

Total income tax expenses

 

–79.0

 

–57.2

The weighted average tax rate results from applying each subsidiary’s statutory income tax rate to the income before taxes. Since the group operates in countries that have differing tax laws and rates, the consolidated weighted average effective tax rate may vary from year to year according to variations in income per country and changes in applicable tax rates.

Reconciliation of income tax expenses

millions of CHF

 

2022

 

2021

Income before income tax expenses from continuing operations

 

107.0

 

197.9

Weighted average tax rate

 

23.7%

 

23.7%

Income taxes at weighted average tax rate

 

–25.4

 

–46.9

Income taxed at different tax rates

 

3.4

 

1.0

Effect of tax loss carryforwards and allowances for deferred income tax assets

 

–2.7

 

–4.7

Expenses not deductible for tax purposes

 

–5.2

 

–5.3

Effect of changes in tax rates and legislation

 

–2.2

 

3.6

Prior year items and others

 

–47.0

 

–4.9

Total income tax expenses

 

–79.0

 

–57.2

Effective income tax rate

 

73.8%

 

28.9%

The effective income tax rate for 2022 was 73.8% (2021: 28.9%). The effective income tax rate was significantly impacted by recognized impairments on the Russian business upon the classification of the four Russian entities as held for sale and the wind down of the Polish business. The total tax impact amounts to CHF 37.4 million, with CHF 32.3 million presented in prior year items and others. Furthermore, the effect of tax loss carryforwards and allowances for deferred income tax assets in the amount of –2.7 million was impacted by a reversal of Russian deferred tax assets in the amount of CHF 5.1 million.

The effect of changes in tax rates and legislation mainly relates to the announced tax rate change in France and UK causing the revaluation of a deferred tax position in the amount of –2.2 million. Expenses not deductible for tax purposes in the amount of –5.2 million mainly relates to disallowances of group charges and interest.

Prior year items and others include beside the above mentioned Russian and Polish restructuring effects a –2.7 million impact from CTA movements and adjustments on deferred and current tax receivables in Sweden and Switzerland in the amount of –3.6 million.

The effective income tax rate for 2021 was 28.9%. The effect of tax loss carryforwards and allowances for deferred tax assets in the amount of CHF –4.7 million consist of restructuring expenses related to closed facilities and divestments of businesses with no corresponding tax effects. Expenses not deductible for tax purposes in the amount of CHF –5.3 million mainly relate to the disallowance of group charges and interests. Prior year items and others include additional provision for uncertain tax positions in the amount of CHF 1.1 million, tax base adjustments in Russia and Mexico, and negative tax audit assessments.

Income tax liabilities

millions of CHF

 

2022

 

2021

Balance as of January 1

 

42.4

 

43.5

Acquired through business combination

 

 

0.7

Derecognized as discontinued operations

 

 

–10.0

Additions

 

76.1

 

77.0

Released as no longer required

 

–16.6

 

–6.9

Utilized

 

–67.4

 

–62.6

Currency translation differences

 

–1.8

 

0.7

Total income tax liabilities as of December 31

 

32.8

 

42.4

– thereof non-current

 

2.7

 

2.2

– thereof current

 

30.0

 

40.2

Summary of deferred income tax assets and liabilities in the balance sheet

 

 

2022

 

2021

millions of CHF

 

Assets

 

Liabilities

 

Net

 

Assets

 

Liabilities

 

Net

Intangible assets

 

11.8

 

–57.9

 

–46.1

 

11.9

 

–66.5

 

–54.6

Property, plant and equipment

 

3.6

 

–17.4

 

–13.7

 

3.2

 

–16.8

 

–13.6

Other financial assets

 

21.3

 

–1.6

 

19.7

 

17.1

 

–0.5

 

16.6

Inventories

 

32.3

 

–2.1

 

30.3

 

29.4

 

–1.2

 

28.2

Other assets

 

18.9

 

–30.7

 

–11.7

 

18.7

 

–50.9

 

–32.2

Defined benefit obligations

 

20.7

 

 

20.7

 

33.0

 

 

33.0

Non-current provisions

 

9.1

 

–1.0

 

8.0

 

13.4

 

–0.0

 

13.4

Current provisions

 

29.2

 

–1.0

 

28.2

 

29.2

 

–2.7

 

26.5

Other liabilities

 

53.6

 

–16.8

 

36.9

 

48.0

 

–14.6

 

33.4

Tax loss carryforwards

 

23.5

 

 

23.5

 

28.9

 

 

28.9

Elimination of intercompany profits

 

1.1

 

 

1.1

 

0.5

 

 

0.5

Tax assets / liabilities

 

225.2

 

–128.3

 

96.9

 

233.2

 

–153.2

 

80.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Offset of assets and liabilities

 

–75.3

 

75.3

 

 

–69.1

 

69.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net recorded deferred income tax assets and liabilities

 

149.9

 

–53.0

 

96.9

 

164.2

 

–84.1

 

80.1

Cumulative deferred income taxes recorded in equity as of December 31, 2022, amounted to CHF 21.8 million (2021: CHF 0.5 million). The group does not recognize any deferred taxes on investments in subsidiaries because it controls the dividend policy of its subsidiaries – i.e., the group controls the timing of reversal of the related taxable temporary differences and management is satisfied that no material amounts will reverse in the foreseeable future.

Movement of deferred income tax assets and liabilities in the balance sheet

 

 

2022

millions of CHF

 

Balance as of January 1

 

Recognized in profit or loss - continuing operations

 

Recognized in other comprehensive income

 

Currency translation differences

 

Balance as of December 31

Intangible assets

 

–54.6

 

4.6

 

 

3.9

 

–46.1

Property, plant and equipment

 

–13.6

 

–0.7

 

 

0.6

 

–13.7

Other financial assets

 

16.6

 

3.1

 

 

0.0

 

19.7

Inventories

 

28.2

 

1.5

 

 

0.6

 

30.3

Other assets

 

–32.2

 

15.4

 

5.4

 

–0.3

 

–11.7

Defined benefit obligations

 

33.0

 

–25.2

 

15.4

 

–2.5

 

20.7

Non-current provisions

 

13.4

 

–5.2

 

 

–0.2

 

8.0

Current provisions

 

26.5

 

2.2

 

 

–0.5

 

28.2

Other liabilities

 

33.4

 

4.7

 

 

–1.3

 

36.9

Tax loss carryforwards

 

28.9

 

–3.8

 

 

–1.6

 

23.5

Elimination of intercompany profits

 

0.5

 

0.6

 

 

 

1.1

Total

 

80.1

 

–2.7

 

20.7

 

–1.2

 

96.9

 

 

2021

millions of CHF

 

Balance as of January 1

 

Recognized in profit or loss continuing operations

 

Recognized in profit or loss discontinued operations

 

Recognized in other comprehensive income

 

Acquisition of subsidiaries

 

Derecognized as discontinued operations

 

Currency translation differences

 

Balance as of December 31

Intangible assets

 

–66.1

 

5.6

 

3.8

 

 

–19.7

 

21.4

 

0.5

 

–54.6

Property, plant and equipment

 

–11.5

 

–2.4

 

0.8

 

 

 

–0.1

 

–0.4

 

–13.6

Other financial assets

 

3.2

 

13.2

 

 

 

 

 

0.2

 

16.6

Inventories

 

24.7

 

2.3

 

1.2

 

 

 

 

 

28.2

Other assets

 

–15.2

 

–13.9

 

–6.3

 

0.8

 

 

–0.2

 

2.6

 

–32.2

Defined benefit obligations

 

36.4

 

7.2

 

2.1

 

–13.4

 

 

–0.7

 

1.5

 

33.0

Non-current provisions

 

10.8

 

2.9

 

 

 

 

–0.2

 

 

13.4

Current provisions

 

15.4

 

10.7

 

0.2

 

 

0.1

 

 

 

26.5

Other liabilities

 

25.1

 

6.5

 

1.3

 

 

 

–0.8

 

1.3

 

33.4

Tax loss carryforwards

 

42.7

 

–2.8

 

–8.4

 

 

 

–1.9

 

–0.7

 

28.9

Elimination of intercompany profits

 

0.6

 

–0.1

 

 

 

 

 

 

0.5

Total

 

66.0

 

29.1

 

–5.3

 

–12.6

 

–19.6

 

17.5

 

5.0

 

80.1

Tax loss carryforwards (TLCF)

 

 

2022

millions of CHF

 

Amount

 

Potential tax assets

 

Valuation allowance

 

Carrying amount

 

Unrecognized TLCF

Expiring in the next 3 years

 

0.1

 

0.0

 

 

0.0

 

Expiring in 4–7 years

 

6.0

 

1.1

 

–0.0

 

1.1

 

0.4

Available without limitation

 

219.4

 

39.4

 

–17.0

 

22.4

 

97.2

Total tax loss carryforwards as of December 31

 

225.5

 

40.5

 

–17.0

 

23.5

 

97.6

 

 

2021

millions of CHF

 

Amount

 

Potential tax assets

 

Valuation allowance

 

Carrying amount

 

Unrecognized TLCF

Expiring in the next 3 years

 

0.0

 

0.0

 

 

0.0

 

Expiring in 4–7 years

 

17.0

 

3.6

 

–3.1

 

0.5

 

14.5

Available without limitation

 

232.4

 

45.7

 

–17.3

 

28.4

 

104.8

Total tax loss carryforwards as of December 31

 

249.4

 

49.3

 

–20.4

 

28.9

 

119.3

Deferred income tax assets are recognized for tax loss carryforwards to the extent that the realization of the related tax benefit through future taxable profits is probable. No deferred income tax assets have been recognized on tax loss carryforwards in the amount of CHF 97.6 million (2021: CHF 119.3 million) or on step-ups in relation with the Swiss corporate tax reform (TRAF), which entered into effect on January 1, 2020.

To tackle uneven profit distribution and tax contributions of large multinational enterprises, several tax initiatives have been launched at the global level, including an agreement by over 135 jurisdictions to introduce a global minimum tax rate of 15%. In December 2021, the Organisation for Economic Co-operation and Development (OECD) released a draft legislative framework, followed by detailed guidance released in March 2022. Both documents should be used by individual jurisdictions, which signed the agreement to amend their unilateral tax laws. Once changes to the tax laws in any jurisdiction in which Sulzer operates are enacted or substantively enacted, Sulzer may be subject to the top-up tax. At the date when these financial statements were authorized for issue, none of the jurisdictions in which Sulzer operates had enacted or substantively enacted the tax legislation related to the top-up tax. Management is closely monitoring the progress of the legislative process in each Sulzer jurisdiction. On December 31, 2022, the current status of the legislative process does not allow the Group to determine the potential quantitative impact.