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Annual Report

10 Income tax income/expense

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COMPONENTS OF TAX INCOME AND EXPENSE

 

 

€ million

 

2010

 

2009

Current tax expense, Germany

 

1,719

 

508

Current tax expense, abroad

 

1,536

 

812

Current tax expense

 

3,255

 

1,321

of which prior-period income

 

(–55)

 

(–32)

Income from reversal of tax provisions

 

–292

 

–176

Current income tax expense

 

2,963

 

1,145

Deferred tax income/expense, Germany

 

–427

 

–360

Deferred tax income/expense, abroad

 

–768

 

–436

Deferred tax income

 

–1,196

 

–796

Income tax income/expense

 

1,767

 

349

In Germany, current tax expense is calculated on the basis of a uniform corporation tax rate of 15% (previous year: 15%) 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 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 2010 by €487 million (previous year: €65 million).

Previously unused tax loss carryforwards amounted to €8,311 million (previous year: €3,141 million). Tax loss carryforwards amounting to €6,629 million (previous year: €799 million) can be used indefinitely, while €685 million (previous year: €828 million) must be used within the next ten years. There are additional tax loss carryforwards amounting to €997 million (previous year: €1,518 million) that can be used within a period of 15 to 20 years. Tax loss carryforwards of €5,427 million (previous year: €198 million) are estimated not to be usable.

The increase in tax loss carryforwards estimated not to be usable amounting to approximately €5 billion resulted primarily from a unit in the Scania subgroup. As the unit is not currently forecast to generate sufficient profit in relation to this amount, corresponding deferred tax assets were not recognized.

The benefit arising from previously unrecognised tax losses or tax credits of a prior period that is used to reduce current tax expense amounts to €84 million (previous year: €3 million). Deferred tax expense of €58 million (previous year: €1 million) was reduced because of a benefit arising from previously unrecognised tax losses or tax credits of a prior period. Deferred tax expense arising from the write-down of deferred tax assets amounts to €17 million (previous year: €2 million).

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 €76 million (previous year: €55 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. Tax credits granted for other reasons amounted to €126 million (previous year: €67 million).

No deferred tax assets were recognized for deductible temporary differences of €2 million (previous year: €2 million) and for tax credits of €563 million (previous year: €562 million) that would expire in the period from 2011 to 2023.

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 under current tax receivables at a present value of €951 million. The present value of the refund claim was €808 million at the balance sheet date.

Deferred tax expenses resulting from changes in tax rates amounted to €20 million (previous year: €1 million).

Deferred taxes of €605 million (previous year: €453 million) were recognized without being offset by deferred tax liabilities in the same amount. The companies concerned expect positive tax income in future following losses in fiscal year 2010 or in the previous year.

€943 million of the deferred taxes recognized in the balance sheet was credited to equity (previous year: €207 million) and relates to other comprehensive income. €14 million of this figure (previous year: €4 million) is attributable to noncontrolling interests. In fiscal year 2010, there was no reduction (previous year: €6 million) in deferred taxes resulting from changes in the consolidated Group.

TAX EFFECTS ON OTHER COMPREHENSIVE INCOME

The following deferred taxes relate to items resulting from other comprehensive income:

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€ million

 

Amount before taxes

 

Taxes

 

Amount after taxes

 

Amount before taxes

 

Taxes

 

Amount after taxes

 

 

 

 

 

2010

 

 

 

 

 

2009

Exchange differences on translating foreign operations

 

1,978

 

 

1,978

 

975

 

 

975

Actuarial gains/losses

 

–1,344

 

393

 

–951

 

–860

 

249

 

–611

Cash flow hedges

 

–1,136

 

333

 

–802

 

–225

 

46

 

–179

Available-for-sale financial assets

 

–34

 

10

 

–24

 

271

 

–80

 

191

Equity-accounted investments, net of tax

 

516

 

 

516

 

30

 

 

30

Other comprehensive income

 

–20

 

736

 

717

 

191

 

216

 

406

Tax effects of €35 million (previous year: €– million) resulting from equity transaction costs were credited directly to the capital reserves.

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, 2010

 

Dec. 31, 2009

 

Dec. 31, 2010

 

Dec. 31, 2009

Intangible assets

 

311

 

197

 

2,323

 

2,388

Property, plant and equipment, and leasing and rental assets

 

4,019

 

3,699

 

3,315

 

2,580

Noncurrent financial assets

 

536

 

756

 

29

 

4

Inventories

 

269

 

304

 

443

 

324

Receivables and other assets (including Financial Services Division)

 

1,110

 

622

 

5,234

 

5,931

Other current assets

 

303

 

82

 

51

 

20

Pension provisions

 

1,703

 

1,303

 

4

 

3

Other provisions

 

3,329

 

2,885

 

69

 

61

Liabilities

 

1,442

 

1,309

 

238

 

245

Tax loss carryforwards

 

920

 

929

 

 

Gross value

 

13,942

 

12,084

 

11,706

 

11,558

of which noncurrent

 

(9,558)

 

(8,544)

 

(8,710)

 

(8,070)

Offset

 

10,205

 

9,185

 

10,205

 

9,185

Consolidation

 

510

 

113

 

167

 

–149

Amount recognized

 

4,248

 

3,013

 

1,669

 

2,224

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 €1,767 million reported for 2010 (previous year: €349 million) was €886 million lower (previous year: €23 million) than the expected tax expense of €2,653 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

 

2010

 

2009

Profit before tax

 

8,994

 

1,261

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

 

2,653

 

372

Reconciliation:

 

 

 

 

Effect of different tax rates outside Germany

 

–158

 

–58

Proportion of taxation relating to:

 

 

 

 

tax-exempt income

 

–678

 

–476

expenses not deductible for tax purposes

 

157

 

162

effects of loss carryforwards and tax credits

 

–125

 

52

temporary differences for which no deferred taxes were recognized

 

48

 

349

Tax credits

 

–107

 

–47

Prior-period tax expense

 

–164

 

–33

Effect of tax rate changes

 

20

 

1

Other taxation changes

 

121

 

27

Effective income tax income/expense

 

1,767

 

349

Effective tax rate (%)

 

19.7

 

27.7

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