Sulzer Annual Report 2023

13Income taxes

millions of CHF	2023	2022
Current income tax expenses	–79.1	–76.3
Deferred income tax (expenses) income	5.4	–2.7
Total income tax expenses	–73.8	–79.0

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	2023	2022
Income before income tax expenses from continuing operations	304.3	107.0
Weighted average tax rate	23.7%	23.7%
Income taxes at weighted average tax rate	–72.1	–25.4
Income taxed at different tax rates	–12.3	3.4
Effect of tax loss carryforwards and allowances for deferred income tax assets	0.9	–2.7
Expenses not deductible for tax purposes	–11.4	–5.2
Effect of changes in tax rates and legislation	0.0	–2.2
Prior year items and others	21.2	–47.0
Total income tax expenses	–73.8	–79.0
Effective income tax rate	24.2%	73.8%

The effective income tax rate for 2023 was 24.2% (2022: 73.8%). The effective income tax rate was impacted by income taxed at different tax rates in the amount of CHF 12.3 million due to participation exemptions on dividend income and withholding taxes on dividends, trademark royalties and interests.

Expenses not deductible for tax purposes in the amount of CHF 11.4 million mainly relate to disallowances of group charges for services, financing and other expenses in India, Mexico, the UK and the USA.

Prior year items and others include current tax refunds and receivables from R&D tax credits in Brazil and the USA. Additionally, a deferred income tax asset of CHF 4.0 million was recognized on a step-up in relation to the Swiss Corporate Tax Reform (TRAF) enacted in prior periods. The deconsolidation of the Russian business positively impacted the reconciliation by CHF 2.3 million.

The effective income tax rate for 2022 was 73.8%. 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 amounted 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 related to the announced tax rate change in France and UK causing the revaluation of a deferred tax position in the amount of CHF –2.2 million. Expenses not deductible for tax purposes in the amount of CHF –5.2 million mainly related to disallowances of group charges and interest.

Income tax liabilities

millions of CHF	2023	2022
Balance as of January 1	32.8	42.4
Additions	78.9	76.1
Released as no longer required	–13.1	–16.6
Utilized	–48.8	–67.4
Currency translation differences	–2.9	–1.8
Total income tax liabilities as of December 31	46.8	32.8
– thereof non-current	2.7	2.7
– thereof current	44.1	30.0

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

	2023			2022
millions of CHF	Assets	Liabilities	Net	Assets	Liabilities	Net
Intangible assets	15.0	–52.4	–37.4	11.8	–57.9	–46.1
Property, plant and equipment	5.2	–13.6	–8.4	3.6	–17.4	–13.7
Other financial assets	16.6	–1.1	15.6	21.3	–1.6	19.7
Inventories	27.4	–2.2	25.1	32.3	–2.1	30.3
Other assets	23.7	–55.9	–32.1	18.9	–30.7	–11.7
Defined benefit obligations	21.8	–0.1	21.7	20.7	–	20.7
Non-current provisions	9.6	–0.1	9.5	9.1	–1.0	8.0
Current provisions	23.9	–1.5	22.4	29.2	–1.0	28.2
Other liabilities	44.4	–23.0	21.3	53.6	–16.8	36.9
Tax loss carryforwards	23.1	–	23.1	23.5	–	23.5
Elimination of intercompany profits	1.0	–	1.0	1.1	–	1.1
Tax assets / liabilities	211.7	–149.9	61.8	225.2	–128.3	96.9

Offset of assets and liabilities	–66.8	66.8	–	–75.3	75.3	–

Net recorded deferred income tax assets and liabilities	144.9	–83.2	61.8	149.9	–53.0	96.9

Cumulative deferred income taxes recorded in equity as of December 31, 2023, amounted to CHF –12.5 million (2022: CHF 21.8 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

2023

millions of CHF

Balance as of January 1

Recognized in profit or loss

Recognized in other comprehensive income

Divestment of subsidiaries

Currency translation differences

Balance as of December 31

Intangible assets

–46.1

5.7

–

3.0

–37.4

Property, plant and equipment

–13.7

4.5

–

0.8

–8.4

Other financial assets

19.7

–2.5

–

–1.7

15.6

Inventories

30.3

–3.9

–

–1.2

25.1

Other assets

–11.7

17.0

–36.7

–

–0.7

–32.1

Defined benefit obligations

20.7

–0.5

2.3

–

–0.8

21.7

Non-current provisions

8.0

2.2

–

–0.7

9.5

Current provisions

28.2

–4.5

–

–1.3

22.4

Other liabilities

36.9

–13.8

–

–1.7

21.3

Tax loss carryforwards

23.5

1.2

–

–0.6

–1.1

23.1

Elimination of intercompany profits

1.1

–0.1

–

1.0

Total

96.9

5.4

–34.4

–0.6

–5.5

61.8

	2022
millions of CHF	Balance as of January 1	Recognized in profit or loss	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

Tax loss carryforwards (TLCF)

	2023
millions of CHF	Amount	Potential tax assets	Valuation allowance	Carrying amount	Unrecognized TLCF
Expiring in the next 3 years	2.5	0.1	–0.0	0.0	–
Expiring in 4–7 years	3.9	1.0	–0.0	1.0	0.4
Available without limitation	207.6	37.4	–15.4	22.0	90.5
Total tax loss carryforwards as of December 31	213.9	38.5	–15.4	23.1	90.9

	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

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 90.9 million (2022: CHF 97.6 million) or on some step-ups in relation with the Swiss corporate tax reform (TRAF), which entered into effect on January 1, 2020.

Global Minimum top-up tax

The group operates in Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Romania, South Korea, Sweden, Switzerland, and the United Kingdom, which has enacted new national legislation to implement the global minimum top-up tax. The group might be subject to the top-up tax in relation to its legal entities in Bahrain, Ireland, Qatar, and United Arab Emirates. As the new top-up tax legislation enacted in Switzerland implements only Qualified Domestic Top-up Tax (“QDMTT”) from January 1, 2024, the implementation of the QDMTTs in each individual country needs to be analyzed.

Furthermore, the Group has applied the temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax. The Group recognizes the top-up tax as a current tax when it incurs.

If the QDMTTs had applied in 2023, then the profits relating to the subsidiaries in Bahrain, Ireland, Qatar, and the United Arab Emirates for the year ended December 31, 2023, would not be subject to material top-up tax. The effective tax rate would not significantly increase.