13.Taxes

The breakdown of tax expenses by type is shown in the table below:

The deferred tax assets and liabilities were allocated to the items in the statements of financial position as shown in the table below:

Of the total tax loss carryforwards of €277 million (previous year: €42 million), an amount of €277 million (previous year: €42 million) is expected to be usable within a foreseeable period. The increase in loss carryforwards was mainly due to the growth of tax loss carryforwards in the reporting year and tax reassessments for prior years. Deferred tax assets of €41 million (previous year: €8 million) were recognized for the amount of loss carryforwards expected to be usable.

As in the previous year, no use of tax loss carryforwards was subject to legal or economic restrictions with regard to its usability.

No material tax credits were recorded in either the reporting year or the prior year.

In fiscal 2020, subsidiaries that reported losses for the reporting year or the previous year recognized net deferred tax assets totaling €719 million (previous year: €627 million) from temporary differences and tax loss carryforwards, of which €39 million (previous year: €5 million) were recognized from tax loss carryforwards. All of the deferred tax assets were considered to be unimpaired because the companies concerned were expected to generate taxable income sufficient to utilize them. The planning anticipates stable, positive business performance in future business cycles.

In the reporting year, deferred tax liabilities of €8 million (previous year: €31 million) were recognized for planned dividend distributions by subsidiaries. No deferred tax liabilities were recognized for temporary differences of €88 million (previous year: €48 million) relating to shares in subsidiaries, as the parent company can control the timing of the reversal of the temporary differences, and it is unlikely that these temporary differences will reverse in the foreseeable future.

The reported tax expense of €151 million (previous year: €204 million) for fiscal 2020 was €25 million higher (previous year: €15 million) than the expected tax expense of €126 million (previous year: €189 million) that would have resulted from applying an expected weighted average tax rate to the pre-tax income of the Covestro Group. This average tax rate was derived from the expected tax rates of the individual Group companies and amounted to 20.8% in fiscal 2020 (previous year: 24.8%). The effective tax rate was 25.0% (previous year: 26.8%).

The Covestro Group operates in various countries. The tax rates range from 13.9% to 34% (previous year: 9.2% to 34.4%) due to national regulations.

The reconciliation of expected to actual income tax expense and of the expected to the effective tax rate for the Covestro Group is shown in the following table: