12 Income taxes

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

The effective income tax rate for 2024 was 24.9% (2023: 24.2%). In 2024, the effective income tax rate was impacted by income taxed at different tax rates in the amount of CHF 25.5 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 1.2 million mainly relate to disallowances of group charges for services, financing and other expenses in India, Mexico, the UK and the USA.

Effect of tax loss carryforwards and allowances for deferred income tax assets relates to the utilization of tax losses in Germany, Ireland, UK and USA due to the positive business development. Prior year items and others include current tax refunds and receivables from a Mutual Agreement Procedure in Switzerland (CHF 2.3 million), Research and Development super-deduction in China (CHF 1.5 million) and the refunds from Research and Development tax credits in Brazil and USA.

Additionally, a deferred income tax asset of CHF 2.1 million (2023: 4.0 million) was recognized on a step-up in relation to the Swiss Corporate Tax Reform (TRAF) enacted in prior periods.

The effective income tax rate for 2023 was 24.2%. 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 related to disallowances of group charges for services, financing and other expenses in India, Mexico, the UK and the USA. Prior year items and others in 2023 include current tax refunds and receivables from Research and Development 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.

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

Cumulative deferred income taxes recorded in equity as of December 31, 2024, amounted to  CHF -4.8 million (2023: CHF –12.5 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

Tax loss carryforwards (TLCF)

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 88.8 million (2023: CHF 90.9 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

Sulzer is subject to the global minimum top-up tax under Pillar Two legislation. The domestic top-up tax “QDMTT” legislation was enacted in Switzerland and became applicable from January 1, 2024. The international top-up tax legislation (so called “Income Inclusion Rule (IIR)”) was enacted and became applicable from January 1, 2025. Financial years starting on January 1, 2025, are subject to IIR. No QDMTT was recorded in 2024, as Sulzer benefits from transitional safe harbors.

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.