10. Income tax income/expense

The statutory corporation tax rate in Germany for the 2023 assessment period was 15%. Including trade tax and the solidarity surcharge, this resulted in an aggregate tax rate of 30.0% (previous year: 30.0%).

A tax rate of 30.0% (previous year: 30.0%) was used to measure deferred taxes in the German consolidated tax group.

The local income tax rates applied to companies outside Germany vary between 0% and 46% (previous year: 0% and 46%). In the case of split tax rates, the tax rate applicable to undistributed profits is applied.

The realization of tax benefits from tax loss carryforwards from previous years resulted in a reduction in current income taxes in 2023 of €816 million (previous year: €1,013 million).

The tax loss carryforwards and the expiry of loss carryforwards that could not be used changed as follows:

The benefit arising from previously unrecognized tax losses or tax credits of a prior period that is used to reduce current tax expense in the current fiscal year amounts to €120 million (previous year: €139 million). Deferred tax expense was reduced by €372 million (previous year: €1,687 million) because of a benefit arising from previously unrecognized tax losses and tax credits of a prior period. Deferred tax expense resulting from the write-down of a deferred tax asset amounts to €44 million (previous year: €70 million). Deferred tax income resulting from the reversal of a write-down of deferred tax assets amounts to €125 million (previous year: €34 million).

Tax credits granted by various countries amounted to €473 million (previous year: €493 million).

No deferred tax assets were recognized for deductible temporary differences of €2,232 million (previous year: €2,262 million) and for tax credits of €128 million (previous year: €159 million) that would expire in the next 20 years.

In accordance with IAS 12.39, deferred tax liabilities of €251 million (previous year: €265 million) for temporary differences and undistributed profits of Volkswagen AG subsidiaries were not recognized because control exists.

Deferred tax income resulting from changes in tax rates amounted to €9 million at Group level (previous year: deferred tax expense of €31 million).

Deferred tax assets of €6,508 million (previous year: €1,731 million) were recognized without being offset by deferred tax liabilities in the same amount. In fiscal year 2023, the existing deferred tax assets of companies within the German tax group, which had been recognized due to positive results in the past, were included in this analysis. The companies concerned are expecting positive tax income in the future, following losses in the reporting period or the previous year.

€2,861 million (previous year adjusted: €2,407 million (see changes in comprehensive income)) of the deferred taxes recognized in the balance sheet was credited to equity and relates to other comprehensive income. €– 66 million (previous year: €– 6 million) of this figure is attributable to noncontrolling interests. In fiscal year 2023, no deferred tax income from the remeasurement of pension plans directly through equity was reclassified within equity (previous year: €2 million). In the previous year, there were effects from capital transactions with noncontrolling interests. The classification of changes in deferred taxes is presented in the statement of comprehensive income.

In fiscal year 2023, tax effects of €3 million resulting from equity transaction costs were credited to equity (previous year: €3 million).

DEFERRED TAXES CLASSIFIED BY BALANCE SHEET ITEM

The following recognized deferred tax assets and liabilities were attributable to recognition and measurement differences in the individual balance sheet items and to tax loss carryforwards:

The tax expense reported for 2023 of €5,266 million (previous year adjusted: €6,217 million (see disclosures on IFRS 17)) was €1,692 million (previous year adjusted: €404 million (see disclosures on IFRS 17)) lower than the expected tax expense of €6,958 million that would have resulted from application of a tax rate for the Group of 30.0% (previous year: 30.0%) to the earnings before tax of the Group.

GLOBAL MINIMUM TOP-UP TAX

The Organisation for Economic Co-operation and Development (OECD) has published the model rules for Pillar Two (Pillar 2) based on G20 Inclusive Framework on Tax Avoidance and Profit Shifting, which are intended to address the tax challenges arising from the digitalization of the global economy in order to ensure an effective minimum tax rate of 15%. Volkswagen Group falls within the scope of the OECD model regulations of Pillar Two. The Pillar Two legislation has been enacted or substantially enacted in countries Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Mauritius, Netherlands, Qatar, Romania, Slovakia, Slovenia, South Korea, Sweden, Switzerland, United Arab Emirates, United Kingdom and Vietnam and will enter into force from 1 January 2024 in different combinations of rules and in some cases at a later date. Since the Pillar Two legislation had not yet been finalized at the time of the report, Volkswagen Group is not subject to any tax burden in this regard for the financial year 2023.

The exception introduced in May 2023 with the amendments to IAS 12 means that deferred taxes in connection with income taxes resulting from applicable or announced tax provisions implementing the Pillar Two model rules published by the OECD are neither recognized nor disclosed at Volkswagen Group.

According to legislation, Volkswagen Group will be liable for an additional tax per country at the difference between the GloBE effective tax rate and the minimum tax rate of 15%.

Volkswagen Group is currently in the process of assessing the impact of Pillar Two legislation becoming effective as of in 2024 et seq. Based on the country-by-country reporting (CbCR) for the financial years 2021 and 2022, all Group companies are subject to an effective tax rate per country of more than 15% however with the exception of countries Bermuda, Bosnia and Herzegovina, Bulgaria, Cayman Islands, Estonia, Finland, Ireland, Kosovo, Kuwait, Latvia, Lithuania, Norway, Oman, Pakistan, Panama, Qatar, Saudi Arabia, Tanzania, Thailand, Turkey and the United Arab Emirates. Although the average effective tax rate is less than 15% based on the CbCR data, Volkswagen Group may not be required to pay Pillar Two income taxes in respect of these countries. This is due to specific adjustments provided for in the Pillar Two legislation, which may result in deviations from the effective tax rates calculated. Overall, it is assumed that the tax burden for Volkswagen Group from Pillar Two based on the 2021 and 2022 CbCR data will amount to a range of between EUR 10 million to 20 EUR million. This would have an effect of 0.04%-0.08% on the Group tax rate. Hence, there are no material effects on the net assets, financial position and earnings of Volkswagen Group.

Due to the complexity of the application of the legislation, the quantitative effects of the legislation enacted or entered into force can currently only be estimated in ranges. Therefore, even for group companies with an effective tax rate of more than 15%, Pillar Two may have tax implications. Furthermore, on the basis of the CbCR Safe Harbour, this assessment only applies on a transitional basis (currently until the end of the financial year 2026). For the years following the expiry of the CbCR Safe Harbours, further analyses will be carried out on the basis of the general set of rules.