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Note 5: Income tax


Pre-tax income from continued operations amounted to a loss of €1,498 million (2011: profit €833 million). The net tax charges related to continuing operations are included in the statement of income as follows:

Classification of current and deferred tax result

 

 

 

 

 

In € millions

 

2011

 

2012

 

 

 

 

 

Current tax expense for

 

 

 

 

The year

 

(229)

 

(257)

Adjustments for prior years

 

9

 

31

 

 

(220)

 

(226)

 

 

 

 

 

Deferred tax expense for

 

 

 

 

Origination and reversal of temporary differences and tax losses

 

(21)

 

51

Changes in tax rates

 

7

 

(2)

Tax losses recognized or unrecognized

 

1

 

5

 

 

(13)

 

54

Total

 

(233)

 

(172)

The total tax charge, including discontinued operations was €155 million (2011: €183 million).

Effective tax rate reconciliation

The effective income tax rate based on the consolidated statement of income is 11 percent negative. It is negative because a tax charge was recorded despite a loss incurred for the period, mainly attributable to the largely non-tax-deductible impairment charges.

Excluding the impairment loss on intangibles of €2,106 million, pre-tax income totaled a profit of €608 million. The tax expense excluding the impairment of intangibles amounted to €193 million, thus resulting in an effective consolidated tax rate of 31.7 percent. The effective tax rate in 2012 was affected by several adjustments to prior years. In addition, the geographical mix of taxable income affected the tax charge. The effective tax rate in 2011 was affected by several adjustments to prior years and by tax-exempt gains, the main one being a release of an antitrust provision. In addition, the geographical mix of taxable income affected the tax burden.

The impact of non-refundable withholding tax is dependent on the relative share of our profit from countries that levy withholding tax on dividends and on the timing of the remittance of such dividends. This relative share is expected to increase in the coming years. Based on the Dutch tax system there is only a limited credit for such taxes. The impact for 2012 is exceptionally high because of an anticipated extraordinary dividend.

Effective consolidated tax rate

 

 

 

 

 

in %

 

2011

 

2012

1

Excluding impairment.

Corporate tax rate in the Netherlands

 

25.0

 

25.0

Effect of different tax rates in certain countries

 

3.9

 

3.8

Tax exempt income/non-deductible expenses

 

0.2

 

3.2

Non-taxable income from investment in associates and joint ventures

 

(0.7)

 

(0.7)

Changes in enacted tax rates (reductions in tax rate)

 

(0.9)

 

0.4

Recognition of previously unrecognized tax losses

 

(0.1)

 

(0.8)

Current year losses for which no deferred tax asset was recognized

 

0.3

 

1.5

Current year profits for which no deferred tax asset was recognized

 

0.0

 

(0.2)

Under/(over)-provided in prior years

 

(1.1)

 

(5.1)

Non-refundable withholding taxes

 

1.4

 

4.7

Other

 

 

(0.1)

Effective consolidated tax rate1

 

28.0

 

31.7

Deferred tax assets and liabilities

In the deferred tax asset for other provisions (€326 million), an amount of €189 million (2011: €213 million) is related to interest expense carried forward. From the total amount of recognized net deferred tax assets, €527 million (2011: €513 million) is related to entities that have suffered a loss in either 2012 or 2011 in the tax jurisdiction to which a deferred tax asset relates, and where utilization is dependent on future taxable profit in excess of the profit arising from the reversal of existing taxable temporary differences. Deferred tax assets not recognized on the balance sheet are partly related to capital losses which cannot be offset against operational taxable profits.

Income tax recognized directly in equity

 

 

 

 

 

In € millions

 

2011

 

2012

 

 

 

 

 

Current tax for

 

 

 

 

Currency exchange differences on intercompany loans of a permanent nature

 

(3)

 

4

 

 

(3)

 

4

 

 

 

 

 

Deferred tax for

 

 

 

 

Share-based compensation

 

(3)

 

Hedge accounting

 

17

 

(1)

Currency exchange differences on intercompany loans of a permanent nature

 

(5)

 

2

 

 

9

 

1

Total

 

6

 

5

Unrecognized deferred tax assets

 

 

 

 

 

In € millions

 

2011

 

2012

Capital losses

 

268

 

267

Tax losses

 

23

 

21

Deductible temporary differences

 

124

 

123

Total

 

415

 

411

The loss carryforward recognized in the balance sheet and its usage in the coming years has a decreasing impact on the cash tax rate in coming years.

Loss carryforwards recognized in the balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In € millions

 

2013

 

2014

 

2015

 

2016

 

2017

 

Later

 

Unlimited

 

Total

Total loss carryforwards

 

821

 

20

 

31

 

50

 

66

 

326

 

2,150

 

3,464

Loss carryforwards not recognized in deferred tax assets

 

(751)

 

(7)

 

(13)

 

(26)

 

(38)

 

(7)

 

(16)

 

(858)

Total

 

70

 

13

 

18

 

24

 

28

 

319

 

2,134

 

2,606

Movement in deferred tax in 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In € millions

 

Net balance January 1, 2011

 

Changes in ex-
change rates

 

Acqui-
sitions/
divest-
ments

 

Recog-
nized in income

 

Recog-
nized in equity

 

Net balance December 31, 2011

 

Assets

 

Liabilities

Intangible assets

 

(713)

 

(5)

 

(19)

 

36

 

 

(701)

 

61

 

762

Property, plant and equipment

 

(96)

 

1

 

(4)

 

5

 

 

(94)

 

62

 

156

Inventories

 

28

 

 

 

1

 

 

29

 

33

 

4

Trade and other receivables

 

2

 

1

 

2

 

9

 

 

14

 

31

 

17

Share-based payments

 

11

 

 

 

4

 

(3)

 

12

 

12

 

Provisions for post-retirement benefits

 

134

 

(1)

 

 

(77)

 

 

56

 

247

 

191

Restructuring provisions

 

14

 

 

 

1

 

 

15

 

15

 

Other provisions

 

331

 

8

 

 

(26)

 

 

313

 

345

 

32

Other items

 

150

 

1

 

 

15

 

12

 

178

 

194

 

16

Net operating loss carryforwards

 

752

 

27

 

5

 

55

 

 

839

 

839

 

Deferred tax assets not recognized

 

(408)

 

(14)

 

 

7

 

 

(415)

 

(415)

 

Tax assets/liabilities

 

205

 

18

 

(16)

 

30

 

9

 

246

 

1,424

 

1,178

Set-off of tax

 

 

 

 

 

 

 

(611)

 

(611)

Net deferred taxes

 

205

 

18

 

(16)

 

30

 

9

 

246

 

813

 

567

Movement in deferred tax in 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In € millions

 

Net balance January 1, 2012

 

Changes in ex-
change rates

 

Acqui-
sitions/
divest-
ments

 

Recog-
nized in income

 

Recog-
nized in equity

 

Held for Sale

 

Net balance December 31, 2012

 

Assets

 

Liabilities

Intangible assets

 

(701)

 

12

 

(6)

 

65

 

 

83

 

(547)

 

71

 

618

Property, plant and equipment

 

(94)

 

 

10

 

28

 

 

9

 

(47)

 

84

 

131

Inventories

 

29

 

 

 

 

 

(5)

 

24

 

27

 

3

Trade and other receivables

 

14

 

 

 

9

 

 

(2)

 

21

 

26

 

5

Share-based payments

 

12

 

 

 

3

 

 

 

15

 

15

 

Provisions for post-retirement benefits

 

56

 

(7)

 

 

(133)

 

 

(11)

 

(95)

 

223

 

318

Restructuring provisions

 

15

 

 

 

14

 

 

(2)

 

27

 

28

 

1

Other provisions

 

313

 

(4)

 

 

(25)

 

 

(7)

 

277

 

320

 

43

Other items

 

178

 

(2)

 

 

9

 

 

(4)

 

181

 

214

 

33

Net operating loss carryforwards

 

839

 

(1)

 

(1)

 

105

 

1

 

 

943

 

943

 

Deferred tax assets not recognized

 

(415)

 

9

 

1

 

(6)

 

 

 

(411)

 

(411)

 

Tax assets/liabilities

 

246

 

7

 

4

 

69

 

1

 

61

 

388

 

1,540

 

1,152

Set-off of tax

 

 

 

 

 

 

 

 

(710)

 

(710)

Net deferred taxes

 

246

 

7

 

4

 

69

 

1

 

61

 

388

 

830

 

442

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