Note 16. Current and deferred taxes

Other taxes are referring to withholding tax etc.

The difference between the tax costs of the group and the tax cost based upon applicable tax rates can be explained as follows:

Alfa Laval has provisions for uncertain tax positions and they are booked as a part of current tax liabilities when for instance a local tax audit or a taxation decision indicate an increased tax burden and the company makes the judgement that the tax authority wholly or partially can gain success in the future litigation.

Temporary differences exist when there is a difference between the book value and the tax base of assets and liabilities. The Group’s temporary differences have resulted in a deferred tax asset or a deferred tax liability relating to the following assets and liabilities:

* The Group has reported a deferred tax asset on unused tax losses and tax grants of SEK 265 (534) million. These unused tax losses and tax grants are essentially not restricted in time.

In the Group there are temporary differences and unused tax losses and tax credits of SEK 1,228 (761) million that have not resulted in corresponding deferred tax assets, since these are not likely to be used within a foreseeable time. The temporary differences are mainly relating to pensions, where the date of payment is so far into the future that, considering discounting and uncertainty concerning future profit levels, no asset is deemed to exist. The unused tax losses and tax grants are essentially not restricted in time, but the tax losses that can be utilized per year can be restricted to a certain proportion of the taxable result.

The Group’s normal effective tax rate is approximately 26 (26) percent based on taxable result, and it is calculated as a weighted average based on each subsidiary’s part of the result before tax. One-time items can however increase or decrease the tax rate for an individual year.

Pillar II Model Rules implications

Pillar II legislation has been enacted or substantively enacted in certain jurisdictions the Group operates. The legislation will be effective for the Group’s financial year beginning 1 January 2024. The Group is in scope of the enacted legislation and has performed an assessment of the Group’s potential exposure to Pillar II income taxes.

The assessment of the potential exposure to Pillar II income taxes is based on the most recent country-by-country reporting, and financial statements for the constituent entities in the Group. Based on the assessment, the Pillar II effective tax rates in most of the jurisdictions in which the Group operates are above 15%. However, there are a limited number of jurisdictions where the transitional safe harbor relief does not apply, however in these jurisdictions the Pillar II effective tax rate is close to 15% or exempted in accordance with local Pillar II rules. Therefore, the Group does not expect a material exposure to Pillar II income taxes in those jurisdictions.

The Group is continuing to assess the impact of the Pillar II income taxes legislation on its future financial performance.