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11 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 20.2% (2018 financial year: 20.4%).

In CHF million   1.1.–30.9.2019   1.1.–30.9.2018
Income before income taxes   1,411   1,518
Applicable income tax rate   20.2%   20.4%
Income tax expense at the applicable income tax rate   285   310
         
Reconciliation to reported income tax expense        
Effect of tax rate changes on deferred income taxes   (62)  
Effect others   7   (5)
Total income tax expense   230   305
         
Effective income tax rate   16.3%   20.1%

As at 1 January 2020, various legislative changes concerning company taxation will come into force. A core element is the abolition of various 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. Legislative changes, reductions in tax rates and transitional regulations will result in positive tax effects of around CHF 260 million for full-year 2019 in the Swisscom consolidated financial statement. These effects are incurred over several quarters due to cantonal legislative processes and measures taking place at different times within the scope of the transitional rules. CHF 62 million was recorded as income up to September 2019. The remaining amount of around CHF 200 million is expected to be incurred in the fourth quarter of 2019. These tax effects result on the one hand from the revaluation of existing deferred tax liabilities due to adjustments to the tax rate, and on the other from value adjustments within the scope of the transitional regulations concerning the regular taxation of the holding company. The deferred tax effects in the 2019 consolidated financial statement do not impact current tax payments. From the 2020 financial year onwards, Swisscom expects the average consolidated tax rate to decline by around 1.5% to 19.5%, on the basis of the reductions in tax rates that have already been agreed and those still being planned.