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Note 6 Income tax


Pre-tax income (including the share in profit of associates and joint ventures) amounted to a loss of €784 million (2007: profit €607 million). Tax benefits/(charges) are included in the statement of income as follows:

Tax in the statement of income

 

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In € millions

 

 

 

2008

2007

 

 

 

Tax on operating income less financing income and expenses

(259)

(159)

Tax on share in profit of associates and joint ventures

(1)

(7)

 

 

 

Total

(260)

(166)

Classification of current and deferred tax result

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In € millions

 

 

 

2008

2007

 

 

 

Current tax expense for:

 

 

- The year

(459)

(208)

- Adjustments for prior years

(13)

55

 

(472)

(153)

 

 

 

Deferred tax expense for:

 

 

- Origination and reversal of temporary differences

341

5

- Changes in tax rates

5

(17)

- Tax losses recognized or derecognized

(134)

(1)

 

212

(13)

 

 

 

Total

(260)

(166)

Due to the current economic conditions, we have assessed the deferred tax positions. In the tax losses recognized or derecognized of €134 million, we derecognized an amount of €133 million as we considered it not probable that these deferred tax assets can be utilized against future taxable income.

The high level of current tax expense is among others caused by €190 million tax costs that are related to breaking up National Starch into the part that was sold to Henkel and that was kept by AkzoNobel. These costs were included in the ICI opening balance sheet as deferred tax liabilities which reversed into current tax at the moment of the breakup.

The deferred tax gain is partly offset by the €133 million derecognition of deferred tax assets.

Excluding the incidental impairment loss on ICI intangibles, pre-tax income totaled a profit of €491 million. The tax expense excluding the incidental derecognition of €133 million and deferred tax released due to the impairment of ICI intangibles, amounted to €154 million, thus resulting in an effective consolidated tax rate of 31.4 percent.

The reconciliation of the corporate tax rate in the Netherlands to the effective consolidated tax rate is as follows:

Effective consolidated tax rate

 

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In %

 

 

 

2008

2007

 

 

 

Corporate tax rate in the Netherlands

25.5

25.5

Effect of lower tax rates in certain countries

(2.0)

(0.7)

Tax-exempt income/non-deductible expenses

3.9

9.3

Non-taxable income from investment in associates and joint ventures

(1.2)

(1.2)

Changes in enacted tax rates (reduction in tax rate)

(1.1)

2.8

Recognition/derecognition of previously unrecognized tax losses

0.2

(0.6)

Current year losses for which no deferred tax asset was recognized

2.4

0.7

Profits of the year compensated with losses carried forward for which no deferred tax asset was recognized

(2.5)

0.0

Under/(over)provided in prior years

2.7

(9.0)

Non-refundable withholding taxes

4.0

0.8

Other

(0.5)

(0.2)

 

 

 

Effective consolidated tax rate

31.4

27.4

In 2008, the effective consolidated tax rate was affected by the tax-exempt loss from the divestment of the Decorative business in the UK and from several non-deductible expenses.

In addition, for both years adjustments have been made to previous year positions, based on outcomes of audits and developments in case law.

The worldwide trend of decreasing tax rates has a lowering impact on the long-term tax burden. Decreases in tax rates, however, also have a direct impact on the tax burden, because of a change in the measurement of the deferred tax positions. The relevant changes in this respect include the decrease of the tax rate in several countries as of 2009 and/or later. In addition, changes in the geographical mix of taxable income affected the tax burden.

The increase in non-refundable withholding tax is caused by the fact that the share of AkzoNobel’s profit from countries that levy withholding tax on dividends is increasing. Based on the Dutch tax system there is only a limited credit for such taxes.

For comparative reasons, the above table presents for 2007 the effective consolidated tax rate on the results excluding Organon BioSciences. Including the results of Organon BioSciences, the effective consolidated tax rate is 2.4 percent.

 

Income tax recognized directly in equity

 

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In € millions

 

 

 

 

2008

2007

 

 

 

 

Current tax for:

 

 

-

Currency exchange differences on intercompany loans of a permanent nature

117

12

 

 

117

12

 

 

 

 

Deferred tax for:

 

 

-

Share-based compensation

(13)

27

-

Hedge accounting

17

(7)

-

Other

(3)

 

1

20

 

 

 

 

Total

118

32

Current tax assets of €53 million (2007: €25 million) represent the amount of income taxes recoverable in respect of current and prior periods. Current tax liabilities of €525 million (2007: €278 million) relate to the amount of taxes payable for current and prior periods.

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