Bayerische Motoren Werke AG, commonly referred to as BMW, is a German multinational company that produces automobiles and motorcycles.
Analyzing and Interpreting Income Tax Footnote
Bayerische Motoren Werke AG, commonly referred to as BMW, is a German multinational company that produces automobiles and motorcycles. The company was founded in 1916 as a manufacturer of aircraft engines, which it produced from 1917 until 1918 and again from 1933 to 1945. BMW includes the following footnotes in its 2018 annual report.
Taxes on income of the BMW Group comprise the following:
| in € million | 2018 | 2017 |
|---|---|---|
| Current tax expense | € 2,220 | € 2,558 |
| Deferred tax expense (+)/deferred tax income (–) | 355 | -558 |
| thereof relating to temporary differences | 641 | -502 |
| thereof relating to tax loss carryforwards and tax credits | -286 | -56 |
| Income taxes | € 2,575 | € 2,000 |
The difference between the expected tax expense based on the underlying tax rate for Germany and actual tax expense is explained in the following reconciliation:
| in € million | 2018 | 2017 |
|---|---|---|
| Profit before tax | € 9,815 | € 10,675 |
| Tax rate applicable in Germany | 30.8% | 30.7% |
| Expected tax expense | 3,023 | 3,277 |
| Variances due to different tax rates | -359 | -1026 |
| Tax increases (+)/tax reductions (–) as a result of nondeductible | ||
| expenses and tax-exempt income | 141 | 58 |
| Tax expense (+)/benefits (–) for prior years | -16 | -104 |
| Other variances | -214 | -205 |
| Actual tax expense | € 2,575 | € 2,000 |
The allocation of
| Deferred Tax | Deferred Tax | |
|---|---|---|
| in € million | Assets 2018 | Liabilities 2018 |
| Intangible assets | € 22 | € 3,077 |
| Property, plant and equipment | 171 | 359 |
| Leased products | 487 | 5,210 |
| Other investments | 3 | 20 |
| Sundry other assets | 1,185 | 3,254 |
| Tax loss carryforwards and capital losses | 891 | — |
| Provisions | 5,323 | 29 |
| Liabilities | 2,570 | 620 |
| Eliminations | 3,180 | 981 |
| € 13,832 | € 13,550 | |
| Valuation allowances on tax loss carryforwards and | ||
| capital losses | -498 | 0 |
| Netting within tax jurisdictions | -11,744 | -11,744 |
| 1,590 | 1,806 | |
| € — | € 216 |
a. Determine the company’s effective tax rate.
Note: Round your percentage to one decimal place
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