5.1Taxes

The Groupʼs expected average tax rate is the rate obtained by applying the expected tax rate for each jurisdiction to its respective result before taxes, adjusted for significant one-time effects. The expected tax rate might vary on a year-over-year basis depending on changes in tax regulations and where the results are achieved.

Significant management judgement is required to determine the amount of deferred tax asset that can be recognized for the temporary difference related to the tax-deductible goodwill in Switzerland. This evaluation is based on the timing and amount of future taxable profits, the interpretation of local tax regulation and new OECD administrative guidance on Pillar Two. The Group carried out the annual assessment considering recent developments.

Deferred tax assets have been capitalized based on the projected future performance of the Group companies.

Deferred tax liabilities are not recognized on taxable temporary differences arising from investments in subsidiaries where the Group controls the timing of the reversal and it is probable that the difference will not reverse in the foreseeable future. The aggregate amount of such unrecognised temporary differences from unremitted earnings is CHF 224.8 million (previous year CHF 225.5 million).

The gross values of unused tax loss carryforwards, which have not been capitalized as deferred tax assets, with their expiry dates are as follows:

Tax loss carryforwards, which have not been capitalized also include tax losses from acquired entities with limitation of use and losses that do not qualify for capitalization. The inherent uncertainty regarding the level and use of the tax losses and changes in tax regulations and laws can impact the annual assessment of these unused tax loss carryforwards.

The Group has CHF 125.2 million (previous year CHF 139.9 million) of deductible temporary differences without expiration and CHF 5.4 million (previous year CHF 5.9 million) unused tax credits expiring in more than four years or without expiration for which no deferred tax asset has been recognized. Furthermore, the Group has additional unrecognized deferred tax asset of CHF 240.8 million (previous year CHF 297.9 million) related to the Swiss tax reform introduced by the Swiss Federal Act on Tax Reform and AHV Financing (TRAF) expiring within four years.

Pillar Two income taxes

In October 2021, more than 135 jurisdictions agreed to adopt Global Anti-Base Erosion Rules (GloBE – Pillar Two) as part of the OECDʼs BEPS 2.0 initiatives. These rules aim to ensure that large multinational enterprises pay at least 15% income tax in each jurisdiction where they operate. In December 2021, the OECD released the GloBE Model Rules, which establish a coordinated system for implementing this 15% tax on a globally standardized tax base. This system also includes provisions for levying additional tax (top-up tax) if necessary to meet the 15% threshold.

In December 2023, Switzerland passed the Minimum Tax Ordinance, enforcing OECD Qualified Domestic Minimum Top-up Tax (QDMTT) rules for Sonovaʼs Swiss entities starting from the financial year commenced 1 April 2024. Additionally, other jurisdictions where Sonova operates have also introduced Pillar Two legislation, which will affect Sonova group companies started from the same financial year. Sonova assessed the Pillar Two income taxes of the constituent entities and jurisdictions in scope of the legislation for the 2025/26 financial year. Based on this assessment, the Group concluded that most of the jurisdictions where Sonova operates qualify for at least one CbCR Safe Harbor measure. The financial impact for the Group from Pillar Two income taxes is not material.

In September 2024, Switzerland enacted the Income Inclusion Rule (IIR), which impose the 15% minimum top-up tax on all Sonova subsidiaries starting from 1 April 2025. Sonova does not foresee significant exposure to Pillar Two income taxes from the Swiss introduction of the IIR.

Sonova has used the mandatory exception to not disclose information about deferred tax assets and liabilities related to Pillar Two income taxes.

Accounting policies

Income taxes include current and deferred income taxes. The Group is subject to income taxes in numerous jurisdictions and significant judgment is required in determining the worldwide provision for income taxes. The multitude of transactions and calculations implies the use of certain estimates and assumptions. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and outcome is uncertain. Management establishes provisions, where appropriate, on the basis of amounts expected to be at risk to be paid to the tax authorities.

Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred tax is recorded on the valuation differences (temporary differences) between the tax bases of assets and liabilities and their carrying values in the consolidated balance sheet. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the temporary differences and tax losses can be offset. Deferred income tax liabilities are provided for non-taxable temporary differences arising from investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Accounting judgements and estimates

The consolidated balance sheet includes deferred tax assets of CHF 99.5 million (previous year CHF 173.4 million) related to deductible differences and, in certain cases, tax loss carry forwards, provided that their utilization is considered probable. The recoverable value is based on forecasts of the corresponding taxable Group company over a period of several years. As actual results may differ from these forecasts, the deferred tax assets may need to be adjusted accordingly.

Deferred tax assets further include CHF 98.3 million (previous year: CHF 127.6 million) related to the Swiss tax reform introduced by the Swiss Federal Act on Tax Reform and AHV Financing (TRAF). The calculation of the deferred tax assets required management to make significant estimates and assumptions. Some of these estimates are based on interpretations of existing tax laws or regulations. Whenever circumstances have changed or there is new information that affects these judgements, the estimates will be reassessed.