6.1 Income taxes

Income tax expense

In addition, other com­pre­hen­sive income includes current and deferred income taxes, which may be analysed as follows:

Analysis of income taxes

The applicable income tax rate which serves to prepare the following analysis of income tax expense is the weighted average income tax rate cal­cu­lated on the basis of the Group’s operating sub­sidiaries in Switzer­land. The applicable income tax rate is 18.7% (prior year: 20.0%). The decline in the applicable income tax rate can be attributed to a reduction in the tax rates in various Swiss cantons.

On 1 January 2020, various legislative changes affecting corporate taxation came into force. These changes fun­da­men­tally abolish tax privileges for com­pa­nies, such as the privileged taxation of the profits of holding com­pa­nies. In return, most of the cantons will reduce the corporate income tax rates. Temporary transitional regulations ad­di­tionally dampen the financial impact. Changes in the law, reductions in tax rates and transitional rules led to positive tax effects of CHF 29 million in the Swisscom con­sol­i­dated financial statements for 2020 (prior year: CHF 269 million). These tax effects result from the revaluation of existing deferred income tax liabilities due to tax rate adjustments. Also, valuation adjustments made in line with the transitional rule on ordinary profit taxation on the holding company led to the recognition of new deferred tax assets.

Current income tax assets and liabilities

Deferred income tax assets and liabilities

Tax loss carry-forwards for which no deferred tax assets were recog­nised expire as follows:

Other disclosures

Deferred tax liabilities of CHF 6 million (prior year: none) were recog­nised on the undistributed earnings of sub­sidiaries as at 31 December 2020. Temporary dif­fer­ences of sub­sidiaries and equity-accounted investees for which no deferred tax liabilities are recog­nised as at 31 December 2020 amounted to CHF 2,102 million (prior year: CHF 3,117 million). In 2020, the tax au­thor­i­ties definitively assessed some tax years. The assessments have resulted in no material uncertain tax positions remaining as at 31 December 2020.

Accounting policies

Income taxes encompass all current and deferred taxes which are based on income. Taxes which are not based on income, such as taxes on real estate and on capital, are recorded as other operating expenses. Deferred taxes are computed using the balance sheet liability method, whereby as a general rule deferred taxes are recog­nised on all temporary dif­fer­ences. Temporary dif­fer­ences arise from dif­fer­ences between the carrying amount of a balance sheet position in the con­sol­i­dated financial statements and its value as reported for tax purposes, which will reverse in future periods. Deferred tax assets are only recog­nised as assets to the extent that it is probable that they can be offset against future taxable income. Income tax liabilities on distributions of undistributed profits of Group com­pa­nies are only recog­nised if the distribution of profits is to be made in the foreseeable future. If it is probable that the tax authority will accept the chosen tax treatment, the tax amount in the con­sol­i­dated financial statements is the same as that entered in the tax return submitted. However, if this is not probable, the amounts will be different. The uncertainty is taken into account in the measurement, which re­quires a best-possible estimate of the expected cash outflow. If there are few possible outcomes of the tax treatment, the most likely outcome is used to determine the tax liability. If there are a large number of possible tax con­se­quences, an expected value is determined on the basis of a probability calculation. Current and deferred tax assets and liabilities are offset whenever they relate to the same taxing authority and taxable entity.