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Note 6 Income tax


Pre-tax income (including the share in profit of associates and joint ventures) amounted to a profit of €917 million (2009: profit €471 million). Tax benefits/(charges) are included in the statement of income as follows:

The 2010 net tax charge of €170 million (2009: €141 million) related to continuing operations only. The total tax charge, including discontinued operations was €193 million (2009: €140 million).

Classification of current and deferred tax result

 

 

 

In € millions

2009

2010

 

 

 

Current tax expense for:

 

 

– The year

(188)

(245)

– Adjustments for prior years

23

59

 

(165)

(186)

Deferred tax expense for:

 

 

– Origination and reversal of temporary differences

16

(12)

– Changes in tax rates

14

6

– Tax losses recognized or unrecognized

(6)

22

 

24

16

Total

(141)

(170)

Effective consolidated tax rate

 

 

 

In %

2009

2010

 

 

 

Corporate tax rate in the Netherlands

25.5

25.5

Effect of lower tax rates in certain countries

(0.2)

(1.0)

Tax exempt income/non-deductible expenses

9.3

2.7

Non-taxable income from investment in associates and joint ventures

(1.1)

(0.7)

Changes in enacted tax rates (reductions in tax rate)

(3.1)

(0.7)

Recognition of previously unrecognized tax losses

(1.0)

Current year losses for which no deferred tax asset was recognized

1.7

0.5

Current year profits compensated with losses for which no deferred tax asset was recognized

(0.3)

(2.0)

Under/(over)-provided in prior years

(5.0)

(6.4)

Non-refundable withholding taxes

3.7

2.0

Other

(0.6)

(0.4)

Effective consolidated tax rate

29.9

18.5

In 2010 the effective tax rate was 18.5 percent (2009: 29.9 percent). The tax rate is low because of several adjustments to previous years, partly related to settlements with tax authorities. Furthermore, there were tax-exempt gains related to acquisitions and divestments and part of a not recognized capital loss was used.

In 2009, the tax rate was impacted by several adjustments on previous years, tax exempt income items and non-deductible expenses.

The worldwide trend of decreasing tax rates 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 2011 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 dependent on the relative share of our profit from countries that levy withholding tax on 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.

Income tax recognized directly in equity

 

 

 

In € millions

2009

2010

 

 

 

Current tax for:

 

 

– Currency exchange differences on intercompany loans of a permanent nature

(33)

(16)

 

(33)

(16)

Deferred tax for:

 

 

– Share-based compensation

(8)

(3)

– Hedge accounting

(5)

(15)

– Other

(1)

(4)

 

(14)

(22)

Total

(47)

(38)

Tax in the balance sheet

Current tax assets of €108 million (2009: €102 million) represent the amount of income taxes recoverable in respect of current and prior periods. Current tax liabilities of €456 million (2009: €507 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

 

 

 

 

 

 

 

2009

 

2010

Intangible assets

51

755

68

781

Property, plant and equipment

72

261

64

160

Inventories

33

8

33

5

Trade and other receivables

29

21

22

20

Share-based compensation

15

11

Provisions:

 

 

 

 

– Pensions and other post-retirement benefits

346

103

292

158

– Restructuring

30

2

17

3

– Other provisions

457

175

360

29

Other items

156

54

143

50

Net loss carryforwards

685

809

Deferred tax assets not recognized

(376)

(408)

Tax assets/liabilities

1,498

1,379

1,411

1,206

Set-off of tax

(705)

(705)

(617)

(617)

Net deferred taxes

793

674

794

589

In the deferred tax asset for other provisions (€360 million), an amount of €210 million (2009: €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 carry forward period are revised.

From the total amount of recognized deferred tax assets, €515 million (2009: €652 million) is related to entities that have suffered a loss in either 2010 or 2009 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.

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

Unrecognized deferred tax assets

 

 

 

In € millions

2009

2010

 

 

 

Capital losses

220

257

Tax losses

43

29

Deductible temporary differences

113

122

Total

376

408

Loss carryforwards recognized in the balance sheet

 

 

 

 

 

 

 

 

 

At December 31, 2010, the loss carryforwards expire as follows:

 

 

 

 

 

 

 

 

 

In € millions

2011

2012

2013

2014

2015

Later

Unlimited

Total

 

 

 

 

 

 

 

 

 

Total loss carryforwards

16

15

787

36

29

461

1,330

2,674

Loss carryforwards not recognized in deferred tax assets

(7)

(8)

(746)

(16)

(18)

(14)

(27)

(836)

Total

9

7

41

20

11

447

1,303

1,838

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 2009

 

 

 

 

 

 

 

In € millions

Net balance January 1, 2009

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 payments

15

8

(8)

15

Provisions:

 

 

 

 

 

 

– Pension liabilities 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 operating 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

Movement in deferred tax in 2010

 

 

 

 

 

 

 

In € millions

Net balance January 1, 2010

Changes in exchange rates

Acquisitions/ divestments

Recognized in income

Recognized in equity

Net balance December 31, 2010

 

 

 

 

 

 

 

Intangible assets

(704)

(64)

85

(30)

(713)

Property, plant and equipment

(189)

(15)

9

99

(96)

Inventories

25

1

2

28

Trade and other receivables

8

(2)

(4)

2

Share-based payments

15

(1)

(3)

11

Provisions:

 

 

 

 

 

 

– Pension liabilities and other post-retirement benefits

243

16

(1)

(124)

134

– Restructuring

28

1

(15)

14

– Other provisions

282

23

23

3

331

Other items

102

7

(1)

(15)

93

Net operating loss carryforwards

685

36

88

809

Deferred tax assets not recognized

(376)

(31)

(1)

(408)

Tax assets/liabilities

119

(26)

118

16

(22)

205

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