10 Income tax income/expense

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COMPONENTS OF TAX INCOME AND EXPENSE

 

 

€ million

 

2008

 

2007

Current tax expense, Germany

 

1,355

 

1,873

Current tax expense, abroad

 

1,087

 

1,000

Current tax expense

 

2,442

 

2,873

of which prior-period income/expense

 

(–41)

 

(148)

Income from reversal of tax provisions

 

–104

 

–129

Current income tax expense

 

2,338

 

2,744

Deferred tax income/expense, Germany

 

–86

 

104

Deferred tax income, abroad

 

–332

 

–427

Deferred tax income

 

–418

 

–323

Income tax income/expense

 

1,920

 

2,421

In Germany, current tax expense is calculated on the basis of a uniform corporation tax rate of 15% (previous year: 25%) plus a solidarity surcharge of 5.5%. In addition to corporation tax, trade tax is levied on profits generated in Germany. Due to the non-deductibility of trade tax as a business expense from fiscal year 2008, the average trade tax rate is 13.7%, which results in a total domestic tax rate of 29.5%.

The change in the tax rates due to the Unternehmenssteuerreformgesetz 2008 (German Business Taxation Reform Act 2008) was already reflected in the calculation of the German companies’ deferred tax assets and liabilities for fiscal year 2007.

This resulted in deferred tax income of €75 million. The change in deferred tax assets and liabilities to be recognized directly in equity increased retained earnings by €58 million.

The local income tax rates applied for companies outside Germany vary between 0% and 42%. In the case of split tax rates, the tax rate applicable to undistributed profits is applied.

The realization of tax benefits from tax loss carryforwards from previous years resulted in a reduction in current income taxes in 2008 by €77 million (previous year: €405 million).

Previously unused tax loss carryforwards amounted to €2,172 million (previous year: €1,658 million). Tax loss carryforwards amounting to €808 million (previous year: €960 million) can be used indefinitely, while €95 million (previous year: €54 million) must be used within the next ten years. There are additional tax loss carryforwards amounting to €1,268 million (previous year: €645 million) that can be used within a period of 15 to 20 years. Tax loss carryforwards of €112 million (previous year: €483 million) are estimated not to be usable.

The decrease in tax loss carryforwards estimated not to be usable amounting to €371 million resulted primarily from the tax position of the US and Brazilian companies.

Deferred taxes are recognized where income from subsidiaries was tax-exempt in the past due to specific local regulations, but the tax effects on discontinuation of the temporary tax exemption are foreseeable. Tax benefits amounting to €73 million (previous year: €83 million) were recognized because of tax credits granted by various countries to compensate for the loss of tax relief where the amounts involved were unlimited.

No deferred tax assets were recognized for tax credits of €371 million (previous year: €313 million) that would expire in 2011 or 2017.

Due to the change in the statutory provisions in Germany, a refund claim for corporation tax was recognized as a current tax asset for the first time in fiscal year 2006. It was recognized in the balance sheet at a present value of €951 million. The present value of the refund claim was €965 million at the balance sheet date.

Deferred tax income resulting from changes in tax rates amounted to €54 million (previous year: deferred tax expenses of €76 million).

€1 million of the deferred taxes recognized in the balance sheet was charged to equity (previous year: €144 million charged to equity) without being recognized in the income statement. This amount includes €44 million (previous year: –) of deferred taxes credited to equity that are attributable to minority interests and a €2 million (previous year: –) reduction in deferred taxes resulting from changes in the consolidated Group. Recognition of actuarial gains or losses directly in equity in accordance with IAS 19 resulted in a decrease in equity from the recognition of deferred taxes of €57 million in 2008 (previous year: decrease by €610 million). Changes in deferred taxes on reserves for cash flow hedges increased equity by €134 million (previous year: decrease by €233 million). The deferred taxes required to be recognized on the fair value measurement of securities increased equity by €68 million (previous year: increase of €103 million).

DEFERRED TAXES CLASSIFIED BY BALANCE SHEET ITEM

The following recognized deferred tax assets and liabilities were attributable to recognition and measurement differences in the individual balance sheet items and to tax loss carryforwards:

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Deferred tax assets

 

Deferred tax liabilities

€ million

 

Dec. 31, 2008

 

Dec. 31, 2007

 

Dec. 31, 2008

 

Dec. 31, 2007

Intangible assets

 

235

 

177

 

2,271

 

1,532

Property, plant and equipment, and leasing and rental assets

 

4,123

 

3,958

 

2,729

 

2,153

Noncurrent financial assets

 

1,059

 

178

 

2

 

1

Inventories

 

335

 

190

 

321

 

448

Receivables and other assets (including Financial Services Division)

 

771

 

413

 

5,749

 

4,862

Other current assets

 

129

 

43

 

41

 

41

Pension provisions

 

1,050

 

1,039

 

8

 

5

Other provisions

 

2,723

 

2,490

 

530

 

123

Liabilities

 

1,708

 

1,507

 

1,853

 

1,198

Tax loss carryforwards

 

663

 

313

 

0

 

0

Valuation allowances on deferred tax assets

 

0

 

0

 

0

 

0

Gross value

 

12,796

 

10,308

 

13,504

 

10,363

of which noncurrent

 

(8,871)

 

(7,134)

 

(8,941)

 

(6,653)

Offset

 

9,885

 

8,229

 

9,885

 

8,229

Consolidation

 

433

 

1,030

 

35

 

503

Amount recognized

 

3,344

 

3,109

 

3,654

 

2,637

In accordance with IAS 12, deferred tax assets and liabilities are offset if, and only if, they relate to income taxes levied by the same taxation authority and relate to the same tax period.

The tax expense of €1,920 million reported for 2008 (previous year: expense of €2,421 million) was €29 million (previous year: €85 million) lower than the expected tax expense of €1,949 million that would have resulted from application of a tax rate applicable to undistributed profits of 29.5% to the profit before tax of the Group.

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RECONCILIATION OF EXPECTED TO EFFECTIVE INCOME TAX

 

 

€ million

 

2008

 

2007

Profit before tax

 

6,608

 

6,543

Expected income tax expense
(tax rate 29.5%; previous year: 38.3%)

 

1,949

 

2,506

Reconciliation:

 

 

 

 

Effect of different tax rates outside Germany

 

–141

 

–456

Proportion of taxation relating to:

 

 

 

 

tax-exempt income

 

–286

 

–306

expenses not deductible for tax purposes

 

183

 

365

effects of loss carryforwards and tax credits

 

–47

 

–287

temporary differences for which no deferred taxes were recognized

 

422

 

486

Tax credits

 

–23

 

–85

Prior-period current tax expense

 

–41

 

148

Effect of tax rate changes

 

–54

 

–76

Other taxation changes

 

–42

 

126

Effective income tax income/expense

 

1,920

 

2,421

Effective tax rate (%)

 

29.1

 

37.0

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