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Income taxes | 12 Months Ended
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Dec. 31, 2017
Disclosure of Income taxes [Abstract] |
Income taxes [Text block] | Table of Contents ### Note 8Income taxes The income tax expense of continuing operations amounted to EUR 349 million (2016: EUR 203 million, 2015: EUR 169 million). The components of income before taxes and income tax expense are as follows: Philips Group Income tax expense in millions of EUR 2015 - 2017
| 2015 | 2016 | 2017
Netherlands | 93 | 137 | 929
Foreign | 206 | 886 | 451
Income before taxes of continuing operations 1 ) | 299 | 1,023 | 1,381
Netherlands: |  |  |
Current tax (expense) benefit | 47 | 10 | ( 15)
Deferred tax (expense) benefit | 6 | ( 95) | ( 150)
Total tax (expense) benefit of continuing operations (Netherlands) | 53 | ( 85) | ( 165)
Foreign: |  |  |
Current tax (expense) benefit | ( 157) | ( 155) | ( 258)
Deferred tax (expense) benefit | ( 65) | 37 | 73
Total tax (expense) benefit of continuing operations (foreign) | ( 222) | ( 118) | ( 184)
Income tax expense of continuing operations | ( 169) | ( 203) | ( 349)
1)Income before tax excludes the result of investments in associates. Income tax expense of continuing operations excludes the tax expense of the discontinued operations of EUR 182 million (2016: EUR 181 million, 2015: EUR 144 million), further detailed in section Discontinued operations and assets classified as held for sale. The components of income tax expense of continuing operations are as follows: Philips Group Current income tax expense in millions of EUR 2015 - 2017
| 2015 | 2016 | 2017
Current year tax (expense) benefit | ( 121) | ( 165) | ( 275)
Prior year tax (expense) benefit | 11 | 20 | 3
Current tax (expense) | ( 110) | ( 145) | ( 272)
Philips Group Deferred income tax expense in millions of EUR 2015 - 2017
| 2015 | 2016 | 2017
Recognition of previously unrecognized tax loss and credit carryforwards | 4 | 19 | 32
(Unrecognized) tax loss and credit carryforwards 1 ) | ( 9) | ( 56) | ( 9)
(Unrecognized) recognition of temporary differences 1 ) | ( 35) | 31 | 35
Prior year tax | ( 6) | ( 1) | 6
Tax rate changes | ( 19) | 5 | ( 72)
Origination and reversal of temporary differences, tax losses and tax credits | 6 | ( 56) | ( 69)
Deferred tax (expense) benefit | ( 59) | ( 58) | ( 77)
1)Unrecognized tax loss and credit carryforwards and temporary differences are expenses, which offset the corresponding tax benefits in Origination and reversal of temporary differences, tax losses and tax credits Philips’ operations are subject to income taxes in various foreign jurisdictions. The statutory income tax rates varies up to 40.0%, which results in a difference between the weighted average statutory income tax rate and the Netherlands’ statutory income tax rate of 25.0% (2016: 25.0%; 2015: 25.0%). A reconciliation of the weighted average statutory income tax rate to the effective income tax rate of continuing operations is as follows: Philips Group Effective income tax rate in % 2015 - 2017
| 2015 | 2016 | 2017
Weighted average statutory income tax rate in % | 43.6 | 23.3 | 24.5
Recognition of previously unrecognized tax loss and credit carryforwards | ( 1.4) | ( 1.9) | ( 2.3)
Unrecognized tax loss and credit carryforwards | 2.9 | 5.5 | 0.6
Unrecognized (recognition of) temporary differences | 11.4 | ( 3.1) | ( 2.6)
Non-taxable income and tax incentives | ( 35.5) | ( 8.2) | ( 9.8)
Non-deductible expense | 33.8 | 9.3 | 6.4
Withholding and other taxes | 8.3 | 1.2 | 4.0
Tax rate changes | 5.9 | ( 0.5) | 5.2
Prior year tax | 1.0 | ( 1.8) | ( 0.6)
Tax expense (benefit) due to other tax liabilities | ( 12.7) | ( 2.6) | ( 1.7)
Others, net | ( 1.0) | ( 1.3) | 1.5
Effective income tax rate | 56.4 | 19.9 | 25.3
The effective income tax rate was higher than the weighted average statutory income tax rate in 2017, largely due to a tax charge recorded for the re-measurement of Philips’ US deferred tax assets as a result of the enactment of the US Tax Cuts and Jobs Act in December 2017. This effect was partly offset by tax benefits from the recognition of deferred tax assets which were previously unrecognized. #### Deferred tax assets and liabilities Deferred tax assets are recognized for temporary differences, unused tax losses, and unused tax credits to the extent that realization of the related tax benefits is probable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the countries where the deferred tax assets originated and during the periods when the deferred tax assets become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Net deferred tax assets relate to the following underlying assets and liabilities and tax loss carryforwards (including tax credit carryforwards) and their movements during the years 2017 and 2016 respectively are presented in the tables below. The net deferred tax assets of EUR 1,565 million (2016: EUR 2,692 million) consist of deferred tax assets of EUR 1,598 million (2016: EUR 2,758 million) and deferred tax liabilities of EUR 33 million (2016: EUR 66 million). The decrease in the net deferred tax assets by EUR 1,127 million is predominantly attributable to the deconsolidation of Philips Lighting (EUR 437 million) the tax rate change in the US (EUR 200 million), acquisitions (EUR 186 million) and the impact of foreign currency translation (EUR 177 million). The tax rate change as a result of the enactment of the US Tax Cuts and Jobs Act in December 2017 resulted in EUR 200 million decrease of deferred tax assets, of which EUR 171 million is recognized as a tax expense in net income and EUR 29 million in equity. Of the total expense, EUR 99 million is presented within net income from Discontinued operations following the Company’s policy to present and recognize re-measurements of deferred taxes as a result of tax rate changes based on the origin of the deferred tax (backwards tracing). As the originating tax result was based on the Lumileds and Lighting discontinued operations, the impact of the tax rate change is also recognized in Discontinued operations. The impact of the tax rate change relating to discontinued operations and equity, acquisitions and foreign currency translation are presented as ‘Other’ in the table below. Of the total deferred tax assets of EUR 1,598 million at December 31, 2017 (2016: EUR 2,758 million), EUR 161 million (2016: EUR 2,054 million) is recognized in respect of entities in various countries where there have been tax losses in the current or preceding period. Management’s projections support the assumption that it is probable that the results of future operations will generate sufficient taxable income to utilize these deferred tax assets. At December 31, 2017 the temporary differences associated with investments, including potential income tax consequences on dividends, for which no deferred tax liabilities are recognized, aggregate to EUR 290 million (2016: EUR 685 million). Philips Group Deferred tax assets and liabilities in millions of EUR 2017
| Balance as of January 1, 2017 | recognized in income statement | Transfer to assets held for sale | other 1 ) | Balance as of December 31, 2017 | Assets | Liabilities
Intangible assets | ( 676) | 549 | ( 28) | ( 228) | ( 383) | 423 | ( 806)
Property, plant and equipment | 10 | 15 |  | ( 2) | 23 | 39 | ( 16)
Inventories | 347 | ( 34) | ( 52) | ( 29) | 231 | 235 | ( 4)
Other assets | 138 | 7 | ( 82) | 12 | 74 | 96 | ( 22)
Pension and other employee benefits | 597 | ( 126) | ( 149) | ( 57) | 265 | 265 | -
Other liabilities | 989 | ( 288) | ( 8) | ( 158) | 536 | 596 | ( 61)
Deferred tax assets on tax loss carryforwards | 1,288 | ( 201) | ( 125) | ( 144) | 819 | 819 | -
Set-off deferred tax positions |  |  |  | - |  | ( 876) | 876
Net deferred tax assets | 2,692 | ( 77) | ( 444) | ( 606) | 1,565 | 1,598 | ( 33)
1) Other includes the movements of assets and liabilities recognized in OCI, which includes foreign currency translation differences and acquisitions, as well as the effects of US Tax Cuts and Jobs Act. Philips Group Deferred tax assets and liabilities in millions of EUR 2016
| Balance as of January 1, 2016 | recognized in income statement | other 1 ) | Balance as of December 31, 2016 | Assets | Liabilities
Intangible assets | ( 1,089) | 450 | ( 36) | ( 676) | 542 | ( 1,218)
Property, plant and equipment | 19 | 1 | ( 10) | 10 | 64 | ( 54)
Inventories | 312 | 24 | 11 | 347 | 353 | ( 6)
Other assets | 68 | 32 | 37 | 138 | 161 | ( 23)
Pensions and other employee benefits | 707 | ( 138) | 27 | 597 | 598 | ( 1)
Other liabilities | 981 | ( 32) | 40 | 989 | 1,107 | ( 118)
Deferred tax assets on tax loss carryforwards | 1,562 | ( 368) | 93 | 1,288 | 1,288 | -
Set-off deferred tax positions |  |  |  |  | ( 1,355) | 1,355
Net deferred tax assets | 2,560 | ( 30) | 162 | 2,692 | 2,758 | ( 66)
1) Other includes the movements of assets and liabilities recognized in OCI, which includes foreign currency translation differences, and acquisitions and divestments. The company has available tax loss and credit carryforwards, which expire as follows: Philips Group Expiry years of net operating loss and credit carryforwards in millions of EUR
Total | Total Balance as of December 31, 2016 | Unrecognized balance as of December 31, 2016 | Total Balance as of December 31, 2017 | Unrecognized balance as of December 31, 2017
2017 | 14 | - | - | -
2018 | 4 | 3 | 3 | 3
2019 | 58 | 10 | 5 | 2
2020 | 137 | 21 | 15 | 6
2021 | 37 | 3 | 14 | 2
2022 | - | - | 1,843 | 1,809
Later than 2021, respectively 2022 | 3,503 | 14 | 2,134 | 410
Unlimited | 2,077 | 1,118 | 1,812 | 1,118
Total | 5,830 | 1,170 | 5,827 | 3,351
At December 31, 2017, the amount of deductible temporary differences for which no deferred tax asset has been recognized in the balance sheet was EUR 42 million (2016: EUR 868 million) #### Tax risks Philips is exposed to tax risks. With regard to these tax risks a liability is recognized if, as a result of a past event, Philips has an obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. These uncertain positions are presented as Other tax liabilities in Other liabilities and include, among others, the following: #### US Tax Cuts and Jobs Act Philips assessed the impact of the material aspects of the US Tax Cuts and Jobs Act on its current and deferred tax assets and liabilities. These reported amounts may be subject to estimation uncertainty and measurement adjustments may need to be made in subsequent reporting periods as Philips will get more accurate information on the impact of the Act and the modalities of its application. The main uncertainties relate to the availability of net interest expense carryforwards and the amount of tax earnings and profits subject to tax under the mandatory deemed repatriation provisions. #### Transfer pricing risks Philips has issued transfer pricing directives, which are in accordance with international guidelines such as those of the Organization of Economic Co-operation and Development. In order to reduce the transfer pricing uncertainties, monitoring procedures are carried out by Group Tax to safeguard the correct implementation of the transfer pricing directives. #### Tax risks on general and specific service agreements and licensing agreements Due to the centralization of certain activities (such as research and development, IT and group functions), costs are also centralized. As a consequence, these costs and/or revenues must be allocated to the beneficiaries, i.e. the various Philips entities. For that purpose, service contracts such as intra-group service agreements and licensing agreements are signed with a large number of group entities. Tax authorities review these intra-group service and licensing agreements, and may reject the implemented intra-group charges. Furthermore, buy in/out situations in the case of (de)mergers could affect the cost allocation resulting from the intragroup service agreements between countries. The same applies to the specific service agreements. #### Tax risks due to disentanglements and acquisitions When a subsidiary of Philips is disentangled, or a new company is acquired, tax risks may arise. Philips creates merger and acquisition (M&A) teams for these disentanglements or acquisitions. In addition to representatives from the involved business, these teams consist of specialists from various group functions and are formed, among other things, to identify tax risks and to reduce potential tax claims related to disentangled entities. Examples of tax risks are: applicability of participation exemptions, cost allocation issues, and issues related to (non-)deductibility. #### Tax risks due to permanent establishments A permanent establishment may arise when operations in a country involve a Philips organization in another country, there is a risk that tax claims will arise in the former country as well as in the latter country; potentially leading to double taxation.

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