Change

Note 6 Income tax


Pre-tax income (including the share in profit of associates and joint ventures) amounted to a profit of €483 million (2008: loss €784 million). Tax benefits/(charges) are included in the statement of income as follows:

Tax in the statement of income

 

 

 

In € millions

 

 

 

2008

2009

 

 

 

Tax on operating income less financing income and expenses

(259)

(128)

Tax on share in profit of associates and joint ventures

(1)

 

 

 

Total

(260)

(128)

The 2009 net tax charge of €128 million (2008: €260 million) related to continuing operations only. The total tax charge, including discontinued operations was €162 million (2008: €260 million).

Classification of current and deferred tax result

 

 

 

In € millions

 

 

 

2008

2009

 

 

 

Current tax expense for:

 

 

- The year

(459)

(190)

- Adjustments for prior years

(13)

30

 

(472)

(160)

 

 

 

Deferred tax expense for:

 

 

- Origination and reversal of temporary differences

341

24

- Changes in tax rates

5

14

- Tax losses recognized or derecognized

(134)

(6)

 

212

32

 

 

 

Total

(260)

(128)

When comparing 2009 tax amounts with previous year, the following should be noted. In 2008 there was a high level of current tax expense and deferred tax gain caused by 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 in 2008 was partly offset by a €133 million derecognition of deferred tax assets.

Based on assessments of the major deferred tax asset positions per December 31, 2009 we concluded that no further derecognition is necessary, as we consider it probable that those deferred tax assets can be utilized against future taxable income.

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

Effective consolidated tax rate

 

 

 

In %

 

 

 

2008

2009

 

 

 

Corporate tax rate in the Netherlands

25.5

25.5

Net effect of different tax rates in certain countries

(2.0)

(0.6)

Non-deductible expenses/(tax-exempt income)

3.9

7.9

Non-taxable income from investment in associates and joint ventures

(1.2)

(1.1)

Changes in enacted tax rates (reductions in tax rate

(1.1)

(3.0)

Recognition/derecognition of previously unrecognized tax losses

0.2

Current year losses for which no deferred tax asset was recognized

2.4

1.7

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

(2.5)

(0.3)

Under/(over)-provided in prior years

2.7

(6.2)

Non-refundable withholding taxes

4.0

3.6

Other

(0.5)

(1.1)

 

 

 

Effective consolidated tax rate

31.4

26.4

In 2009, the effective rate was 26 percent (2008: 31 percent excluding the impact of the impairment of goodwill/intangibles and derecognition of deferred tax assets). The under/(over)-provision in prior years related to a receipt of €75 million on a contingent basis as part of ongoing tax litigation. We recorded a net gain €57 million on the tax line. Several other adjustments have been made with regard to the tax provisions for prior years. In addition, we recorded several tax-exempt income items, such as the PTA Pakistan divestment, as well as certain incidental non-deductible expenses, mainly related to antitrust costs.

The worldwide trend of decreasing tax rates – which seems to have come to a halt – has a diminishing 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 included the decrease of the tax rate in several countries as of 2010 and/or later. In addition, changes in the geographical mix of taxable income affected the tax burden.

The impact of the non-refundable withholding tax is caused by the fact that the relative 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 effective tax rate table presents the 2008 effective consolidated tax rate on the results excluding the incidental impairment loss on ICI intangibles, and the tax expense excluding the incidental derecognition of deferred tax assets of €133 million and the deferred tax liabilities released due to the impairment of ICI intangibles. 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.

Income tax recognized directly in equity

 

 

 

 

In € millions

 

 

 

 

2008

2009

 

 

 

 

Current tax for:

 

 

-

Currency exchange differences on intercompany loans of a permanent nature

117

(33)

 

 

117

(33)

 

 

 

 

Deferred tax for:

 

 

-

Share-based compensation

(13)

(8)

-

Hedge accounting

17

(5)

-

Other

(3)

(1)

 

1

(14)

 

 

 

 

Total

118

(47)

Tax in the balance sheet

Current tax assets of €102 million (2008: €53 million) represent the amount of income taxes recoverable in respect of current and prior periods. Current tax liabilities of €507 million (2008: €525 million) relate to the amount of taxes payable for current and prior periods.

Breakdown of deferred tax assets and liabilities

 

 

 

 

 

In € millions

Assets

Liabilities

Assets

Liabilities

 

 

2008

 

2009

 

 

 

 

 

Intangible assets

85

895

51

755

Property, plant and equipment

53

237

72

261

Inventories

34

5

33

8

Trade and other receivables

32

16

29

21

Share-based compensation

15

15

 

 

 

 

 

Provisions:

 

 

 

 

- Pensions and other post-retirement benefits

469

21

346

103

- Restructuring

33

2

30

2

- Other provisions

441

53

457

175

Other items

180

78

156

54

Net loss carryforwards

517

685

Deferred tax assets not recognized

(377)

(376)

Tax assets/liabilities

1,482

1,307

1,498

1,379

 

 

 

 

 

Set-off of tax

(592)

(592)

(705)

(705)

 

 

 

 

 

Net deferred taxes

890

715

793

674

In the deferred tax asset for other provisions (€457 million), an amount of €194 million is related to interest expense carried forward.

In assessing the recognition of the deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which unused tax losses can be carried forward, unused tax credits can be used and temporary differences become deductible. The nature of the evidence supporting the recognition of the deferred tax assets is the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. The amount of deferred tax assets considered realizable, however, could change in the near term if future estimates of projected taxable income during the carryforward period are revised.

From the total amount of recognized deferred tax assets, €652 million (2008: €186 million) is related to entities that have suffered a loss in either 2009 or 2008 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.

At December 31, 2009, the loss carryforwards expire as follows:

Loss carryforwards recognized in the balance sheet

 

 

 

 

 

 

 

 

 

In € millions

 

 

 

 

 

 

 

 

 

2010

2011

2012

2013

2014

Later

Unlimited

Total

 

 

 

 

 

 

 

 

 

Total loss carryforwards

13

11

34

740

28

446

976

2,248

Loss carryforwards not recognized in deferred tax assets

(8)

(8)

(24)

(616)

(17)

(65)

(22)

(760)

 

 

 

 

 

 

 

 

 

Total

5

3

10

124

11

381

954

1,488

The deferred tax assets not recognized in the balance sheet are related to the following items:

Unrecognized deferred tax assets

 

 

 

In € millions

 

 

 

2008

2009

 

 

 

Capital losses

200

220

Tax losses

42

43

Deductible temporary differences

135

113

 

 

 

Total

377

376

Deferred tax assets not recognized on the balance sheet are partly related to capital losses which cannot be offset against operational taxable profits.

Movement in deferred tax in 2008

 

 

 

 

 

 

 

 

In € millions

Net balance January 1, 2008

Changes in exchange rates

Acquisitions/
divestments

Recognized in income

Recognized in equity

Net balance December 31, 2008

 

 

 

 

 

 

 

 

Intangible assets

11

87

(1,020)

112

(810)

Property, plant and equipment

(68)

32

(204)

56

(184)

Inventories

17

2

(18)

28

29

Trade and other receivables

(6)

5

17

16

Share-based compensation

40

(1)

(11)

(13)

15

 

 

 

 

 

 

 

 

Provisions:

 

 

 

 

 

 

-

Pensions and other post-retirement benefits

153

(12)

193

114

448

-

Restructuring

8

(1)

24

31

-

Other provisions

125

(9)

196

76

388

Other items

56

(3)

(103)

155

(3)

102

Net loss carryforwards

189

(25)

563

(210)

517

Deferred tax assets not recognized

(28)

11

(223)

(137)

(377)

 

 

 

 

 

 

 

 

Tax assets/liabilities

497

81

(616)

212

1

175

Movement in deferred tax in 2009

 

 

 

 

 

 

 

 

In € millions

Net balance December 31, 2008

Changes in exchange rates

Acquisitions/
divestments

Recognized in income

Recognized in equity

Net balance December 31, 2009

 

 

 

 

 

 

 

 

Intangible assets

(810)

(33)

5

134

(704)

Property, plant and equipment

(184)

(10)

6

(1)

(189)

Inventories

29

(2)

(2)

25

Trade and other receivables

16

(2)

(1)

(5)

8

Share-based compensation

15

8

(8)

15

 

 

 

 

 

 

 

 

Provisions:

 

 

 

 

 

 

-

Pensions and other post-retirement benefits

448

12

(217)

243

-

Restructuring

31

1

(4)

28

-

Other provisions

388

10

1

(117)

282

Other items

102

(1)

(1)

3

(1)

102

Net loss carryforwards

517

(7)

1

174

685

Deferred tax assets not recognized

(377)

9

1

(9)

(376)

 

 

 

 

 

 

 

 

Tax assets/liabilities

175

(21)

11

(32)

(14)

119

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