Income tax

The income tax expense on the total result was €115 million, which represents an effective income tax rate of 15.5% (2016: €89 million, representing an effective income tax rate of 17.0%) and can be broken down as follows:

 
2017
2016
   
Current tax expense:
  
- Current year
(78)
(113)
- Prior-year adjustments
(4)
(10)
- Tax credits compensated
2
3
- Non-recoverable withholding tax
(1)
(2)
   
 
(81)
(122)
Deferred tax expense:
  
- Originating from temporary differences and their reversal
(19)
79
- Prior-year adjustments
2
7
- Change in tax rate
25
(4)
- Changes arising from (reversal of) write-down deferred tax assets
9
(17)
- Other changes in tax losses and tax credits
(51)
(32)
   
 
(34)
33
   
Total
(115)
(89)
   
Of which related to:
  
- Adjusted taxable result
(143)
(120)
- APM adjustments
28
31

The effective tax rate on the Adjusted taxable result was 16.8% in 2017 (2016: 18.3%). This decrease was mainly due to the adjusted federal tax rate in the US, following the new tax reform. The relationship between the income tax rate in the Netherlands and the effective tax rate on the result is as follows:

Effective tax rate

in %
2017
2016
   
Domestic income tax rate
25.0
25.0
   
Tax effects of:
  
- Deviating rates
(4.6)
(5.4)
- Rate change US tax reform
(3.0)
-
- Tax-exempt income and non-deductible expense
(0.5)
(0.3)
- Other effects
(0.1)
(1.0)
   
Effective tax rate Adjusted taxable result, continuing operations
16.8
18.3
Discontinued operations
-
(1.1)
APM adjustments (see Note 2)
(1.3)
(0.2)
Total effective tax rate
15.5
17.0

The balance of deferred tax assets and deferred tax liabilities decreased by €55 million owing to the changes presented in the next table:

Deferred tax assets and liabilities

 
2017
2016
   
Balance at 1 January
  
Deferred tax assets
355
366
Deferred tax liabilities
(278)
(319)
   
Total
77
47
   
Changes:
  
- Income tax income/(expense) in income statement
(59)
33
- Income tax: change in tax percentage US (Federal Tax)
25
-
Income tax expense
(34)
33
- Income tax: sale of Patheon (see Note 10)
(22)
-
Total income statement
(56)
33
   
- Income tax expense in other comprehensive income
(25)
8
- Acquisitions and disposals
(5)
(3)
- Exchange differences
22
(12)
- Transfer
9
4
   
Balance at 31 December
22
77
   
Of which:
  
- Deferred tax assets
281
355
- Deferred tax liabilities
(259)
(278)

In various countries, DSM has taken standpoints regarding its tax position which may at any time be challenged, or have already been challenged, by the tax authorities, because the authorities in question interpret the law differently. These uncertainties are taken into account in determining the probability of realization of deferred tax assets and liabilities.

The deferred tax assets and liabilities relate to the following balance sheet items:

Deferred tax assets and liabilities by balance sheet item

  
2017
 
2016
 
Deferred tax assets
Deferred tax liabilities
Deferred tax assets
Deferred tax liabilities
     
Intangible assets
14
(152)
13
(209)
Property, plant and equipment
22
(159)
18
(200)
Financial assets
9
(8)
3
(1)
Inventories
53
(33)
71
(22)
Receivables
5
(17)
5
(5)
Equity
1
(1)
1
(3)
Other non-current liabilities
19
(1)
18
(1)
Non-current provisions
74
(3)
95
(6)
Other current liabilities
70
(12)
95
(3)
     
 
267
(386)
319
(450)
Tax losses carried forward
141
-
208
-
Set-off
(127)
127
(172)
172
     
Total
281
(259)
355
(278)

No deferred tax assets were recognized for loss carryforwards amounting to €211 million (2016: €216 million). Unrecognized loss carryforwards amounting to €77 million will expire in the years up to and including 2022 (2016: €74 million up to and including 2021), €72 million between 2023 and 2027 (2016: €77 million between 2022 and 2026) and the remaining €63 million between 2028 and 2032 (2016: €65 million between 2027 and 2031).

The valuation of deferred tax assets depends on the probability of the reversal of temporary differences and the utilization of tax loss carryforwards. Deferred tax assets are recognized for future tax benefits arising from temporary differences and for tax loss carryforwards to the extent that the tax benefits are likely to be realized. In the Netherlands, tax losses may be carried forward for nine years. DSM has to assess the likelihood that deferred tax assets will be recovered from future taxable profits. Deferred tax assets are reduced if, and to the extent that, it is not probable that all or some portion of the deferred tax assets will be realized. In the event that actual future results differ from estimates, and depending on tax strategies that DSM may be able to implement, changes to the measurement of deferred taxes could be required, which could impact on the company's financial position and profit for the year.