4.15
15. Tax

15.1 Income tax

The effective corporate income tax charge comprises the following:

  2021 2020 2021 2020
  € x 1,000 € x 1,000 % %
Current taxes -17,044 -10,948    
Deferred taxes -4,449 12,862    
Taxes in income statement -21,493 1,914    
         
Taxes based on the weighted average applicable rate -23,529 -16,141 25.7 25.7
Participation exemption 653 488 -0.7 -0.8
Benefits from tax facilities -2 1 0.0 0.0
Deferred tax assets not carried forward -2,289 -1,417 2.5 2.3
Derecognition of deferred tax assets -145 -350 0.2 0.6
Utilization or recognition of deferred tax assets 4,034 17,396 -4.4 -27.7
Adjustment of current taxes of prior years -558 -133 0.6 0.2
Adjustment of deferred taxes of prior years 230 648 -0.3 -1.0
Adjustment in tax rate 661 2,174 -0.7 -3.5
Non-deductible amounts -548 -752 0.6 1.2
Taxes in income statement -21,493 1,914 23.5 -3.0

 

The effective tax rate consists of the reported tax charge for the current year, divided by the profit before taxes. The effective tax rate in 2021 amounted to 23.5% (2020: -3.0%). The calculated weighted average tax rate of 25.7% declined to the effective tax rate of 23.5% primarily due to the addition of € 3.6 million in 2021 to the deferred tax asset. This relates to the partial recognition of the fiscal losses of Raleigh UK. The low effective tax rate in 2020 was mainly due to the recognition of the Dutch liquidation loss facility with regard to the US business. See note 15.2 for more details on the recognition of the deferred tax assets.

Accounting policy

Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Current tax assets and liabilities are offset only if certain criteria are met.

15.2 Deferred taxes

  2021 2020
  € x 1,000 € x 1,000
Deferred tax assets 31,179 38,450
Deferred tax liabilities 14,214 15,909
Net deferred taxes 16,965 22,541

 

The movement in the deferred tax assets was as follows:

  Loss carry forwards consolidated companies Financial instruments Net defined benefit obligation Other long-term employee benefits Brand valuation Other deferred taxes Total deferred tax assets
  € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Balance at 1 January 2020 23,904 144 1,024 469 - 307 25,848
Outgoing business combinations - - - - - - -
Charged through other comprehensive income - 2,361 63 - - - 2,424
Reclassification 7,347 - -68 -34 595 1,817 9,657
Charged through income statement 2,567 - - - - - 2,567
Change in income tax rate -2,430 - - - - - -2,430
Transfer from/to current tax 157 - - - - 330 487
Currency translation differences 3 - - -52 - -54 -103
Balance at 31 December 2020 31,548 2,505 1,019 383 595 2,400 38,450
Outgoing business combinations - - - - - - -
Charged through other comprehensive income - -2,505 -126 - - - -2,631
Charged through income statement -5,247 - -62 81 -82 -245 -5,555
Change in income tax rate 738 - - - - - 738
Transfer from/to current tax - - - - - - -
Reclassification 601 - 13 4 57 -277 398
Currency translation differences -78 - - -66 - -78 -221
Balance at 31 December 2021 27,562 0 844 403 570 1,800 31,179

 

The movement in the deferred tax liabilities was as follows:

  Revaluation of property, plant and equipment Financial instruments Brand valuation and customer lists Net defined benefit asset Other deferred taxes Total deferred tax liabilities
  € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Balance at 1 January 2020 1,240 - 7,361 7,819 374 16,794
Added through business combination - - - - - -
Reclassification - - - - 323 323
Charged through other comprehensive income - - - -112 - -112
Charged through income statement 3 - -1,142 99 16 -1,024
Change in income tax rate - - 386 - - 386
Transfer from/to current tax - - - - - -
Currency translation differences 7 - - -461 -5 -459
Balance at 31 December 2020 1,250 - 6,605 7,345 708 15,908
Added through business combinations - - - - - -
Reclassification - - 6 - 392 398
Charged through other comprehensive income - 2,624 - -4,876 - -2,252
Charged through income statement -199 - -315 50 30 -434
Change in income tax rate - - 65 - - 65
Transfer from/to current tax - - - - - -
Currency translation differences -2 - 12 522 -3 529
Balance at 31 December 2021 1,049 2,624 6,373 3,041 1,127 14,214

 

Deferred tax assets and deferred tax liabilities are offset for the right-of-use assets and lease liabilities. 

Unrecognized tax assets
For some subsidiaries Accell Group has insufficient assurance that future taxable profits will be available to realize the related tax benefits of carry forward losses of € 32.2 million (2020: € 44.7 million). As a result, no deferred tax assets are recognized for these carry forward losses. These unused carry forward losses are mainly carry forward losses in the United Kingdom and are partly related to the global results of the Raleigh group before the acquisition by Accell Group in 2012. In 2021 an amount of € 6.8 million fiscal loss regarding our manufacturing unit Bisiklet in Turkey was added to the unrecognized tax assets. The carry forward period of these unused tax benefits is indefinite for € 25.3 million (2020: € 44.5 million) and five years for € 6.8 million.

Recognized tax assets
The Group has recognized deferred tax assets for tax loss carry-forwards in several jurisdictions for the total amount of € 27.6 million (2020: € 31.5 million). The main jurisdictions in this respect are the Netherlands € 23.8 million (2020:
€ 29.7 million) and Raleigh UK € 3.6 million (2020: € 0).

The Netherlands 
In 2019, Accell Group reached agreement with a private equity firm on the sale of its loss-making North American business and Accell North America LLC was liquidated on 27 October 2020. Accell Group incurred a liquidation loss of € 160.5 million. Accell Group currently expects qualification for the requirements of the Dutch liquidation loss facility. Due to the increased profitability of the Dutch fiscal unity management considers it probable that future taxable profits will be available against which these losses can be used, based on the business plans, profitability gained in the past and current estimates of future taxable profits. Therefore, management recognizes the full taxable effect as from 2020. This results, after deduction of taxable profits, in a deferred tax asset of € 23.8 million end of 2021 (2020: € 29.7 million). The Dutch corporate income tax rate has increased from 25.0% to 25.8% for coming years. This new legislation means that deferred tax assets for loss carry-forwards as per 31 December 2021 have been revalued, with an additional positive impact of € 0.7 million. The Dutch tax loss carry-forwards as per 31 December 2021 amounted to € 92.3 million (2020: € 118.7 million).

Accounting estimates and judgements

The tax legislation in the countries in which Accell Group operates is often complex and subject to interpretation. Judgement is required to determine the current and deferred income tax position. New information may become available that causes Accell Group to change its judgement regarding the adequacy of existing tax liabilities and the recoverability of deferred tax assets; such changes will impact the income tax expense in the period that such a determination is made.
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.

Accounting policy

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for: 

  • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
  • temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that Accell Group is not able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future;
  • taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which Accell Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if certain criteria are met.