7 Income tax

The income tax expense on continuing operations was €124 million, which represents an effective income tax rate of 21.0% (2021: €123 million, representing an effective income tax rate of 20.1%). The amount excludes tax expense from discontinued operations of €66 million (2021: €122 million) and can be broken down as follows.

The relationship between the income tax rate in the Netherlands and the effective tax rate on the taxable result can be explained as follows.

The total effective tax rate on the taxable result in 2022 was 21.0% (2021: 20.1%), excluding APM adjustments this was 20.2% (2021: 20.9%).

The effective tax rate in 2022 compared to the Dutch statutory rate, was positively impacted by the geographical spread and changes in tax rates under local tax law in various countries, partly offset by effects increasing the effective tax rate, including non-deductible expenses.

Compared to prior year, the decrease of the effective tax rate excluding APM adjustments was mainly due to changes in tax rates in various countries, partly compensated by the higher domestic tax rate and less impact of the geographical spread.

The balance of the deferred tax assets and deferred tax liabilities increased by €96 million owing to the changes presented in the following table.

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.

No deferred tax assets were recognized for loss carryforwards amounting to €153 million (2021: €203 million). Unrecognized loss carryforwards amounting to €54 million will expire in the years up to and including 2027 (2021: €98 million up to and including 2026), €30 million between 2028 and 2032 (2021: €37 million between 2027 and 2031) and the remaining €69 million in 2033 and beyond (2021: €68 million between 2032 and beyond). In addition, an amount of €17 million (2021: €23 million) of withholding taxes was unrecognized.

The valuation of deferred tax assets depends on the probability of the reversal of temporary differences and the utilization of tax loss carryforwards, tax credits and withholding tax. 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 probable. 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 have an impact on the company’s financial position and profit for the year.