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Last Update: 03/12/2009
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Part of the audited Consolidated Financial Statements and Management´s Analysis

8 -- Income taxes

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Million €

2008

2007

German corporate income tax, solidarity surcharge,
German trade taxes

377

341

Foreign income tax

2,781

2,355

Taxes for prior years

(208)

(86)

Current taxes

2,950

2,610

Deferred tax expense (+)/income (–)

(279)

.

Income taxes

2,671

2,610

Thereof income taxes on oil-producing operations

2,206

1,768

Other taxes as well as sales and consumption taxes

269

245

Tax expense

2,940

2,855

Income before taxes and minority interests is broken down into domestic and foreign as follows:

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Million €

2008

2007

Germany

1,870

1,759

Foreign oil production branches of German companies

2,389

1,895

Foreign

1,717

3,281

 

5,976

6,935

In Germany, a uniform corporate tax rate of 15% (until 2007: 25%) and thereon a solidarity surcharge of 5.5% is levied on all paid out and retained earnings. In addition to corporate income tax, income generated in Germany is subject to a trade tax that varies depending on the municipality in which the company is located. In 2008, the weighted average tax rate amounted to 12.7% (2007: 15.4%). The profits of foreign Group companies are assessed using the tax rates applicable in the respective countries.

Deferred tax assets and liabilities in the Consolidated Financial Statements have to be valued using the tax rates applicable for the period in which the asset or liability is realized or settled.

For German Group companies, deferred taxes were calculated using a uniform 29% rate. The transition to this tax rate as a result of the German Tax Reform 2008 led to non-recurring non-cash income of €229 million in 2007.

For foreign Group companies, deferred taxes were calculated using the tax rates applicable in the individual foreign countries. Such rates averaged 27% in 2008 and 30% in 2007. In 2008, there was €61 million in non-recurring, non-cash income from changes in tax rates, predominantly in the Russian Federation.

Income from deferred taxes of €279 million resulted in particular for tax loss carryforwards.

Income taxes on foreign oil-producing operations in certain regions are compensable up to the level of the German corporate income tax on this foreign taxable income. The non-compensable amount is shown separately in the following table. In 2008, non-compensable foreign income taxes for oil production amounted to €1,851 million. This is based on a corporate income tax rate of 15%.

Other taxes include real estate taxes and other comparable taxes in the amount of €80 million in 2008 and €77 million in 2007; they are allocated to the appropriate functional costs.

Changes in valuation allowances on deferred tax assets for tax loss carryforwards resulted in charges of €34 million in 2008 and €23 million in 2007.

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Reconciliation from the statutory tax rate in Germany
to the effective tax rate

 

 

 

2008

 

2007

 

Million €

%

 

Million €

%

1

Non-cash income from the reduction in corporate income taxes, primarily in the Russian Federation

2

Non-cash income from the German Tax Reform 2008

Expected German corporate income tax
(15%; 2007: 25%)

896

15.0

 

1,734

25.0

Solidarity surcharge

9

0.1

 

9

0.1

German trade income tax

202

3.4

 

107

1.5

Foreign tax-rate differential

200

3.3

 

158

2.3

Tax exempt income

(142)

(2.4)

 

(338)

(4.9)

Non-deductible expenses

135

2.3

 

74

1.1

Income after taxes of companies accounted for using the equity method

10

0.2

 

(14)

(0.2)

Taxes for prior years

(208)

(3.5)

 

(86)

(1.2)

Income taxes on oil-producing operations non-compensable with German corporate income tax

1,851

31.0

 

1,302

18.8

Deferred tax liabilities for planned dividend distributions of Group companies

(50)

(0.8)

 

31

0.4

Adjustment to deferred tax liabilities due to changes in tax rates

(61)1

(1.0)

 

(229)2

(3.3)

Other

(171)

(2.9)

 

(140)

(2.0)

Income taxes/effective tax rates

2,671

44.7

 

2,610

37.6

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Deferred tax assets and liabilities (million €)

 

 

 

 

Deferred tax assets

 

Deferred tax liabilities

 

2008

2007

 

2008

2007

Intangible assets

37

27

 

1,448

1,374

Property, plant and equipment

191

146

 

1,534

1,358

Financial assets

18

9

 

66

113

Inventories and accounts receivable

276

163

 

776

271

Provisions for pensions

698

484

 

258

102

Other provisions and liabilities

541

661

 

110

54

Tax loss carryforwards

928

637

 

Other

499

62

 

81

216

Netting

(2,106)

(1,428)

 

(2,106)

(1,428)

Valuation allowances for deferred tax assets

(152)

(82)

 

Thereof for tax loss carryforwards

(112)

(78)

 

Total

930

679

 

2,167

2,060

Thereof short term

305

445

 

247

260

Deferred taxes result primarily from temporary differences between tax balances and the valuation of assets and liabilities according to IFRS as well as from tax loss carryforwards. The revaluation of all the assets and liabilities associated with acquisitions according to IFRS 3 has resulted in significant deviations between fair values and the values in the tax accounts. This has primarily led to deferred tax liabilities.

Deferred tax assets were offset against deferred tax liabilities of the same maturity if they were related to the same taxation authority.

Deferred tax liabilities for undistributed earnings of subsidiaries in the amount of €6,305 million in 2008 and €4,986 million in 2007 were not recognized, as they are either not subject to taxation on pay out or they are expected to be reinvested for indefinite periods of time.

The regional distribution of tax loss carryforwards is as follows:

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Tax loss carryforwards (million €)

 

 

2008

2007

Germany

8

34

Foreign

2,507

1,583

 

2,515

1,617

German tax losses may be carried forward indefinitely. Foreign tax loss carryforwards exist primarily in North America. These expire starting in 2022. In 2008, tax loss carryforwards increased. Loss carryforwards in North America were reduced in 2007 and 2006 as a result of high earnings. For tax loss carryforwards of €361 million in 2008 and €196 million in 2007, valuation allowances were recorded.

Tax obligations are comprised of both tax liabilities and short-term tax provisions. Tax liabilities primarily concern the assessed income tax and other taxes. Tax provisions concern estimated income taxes not yet assessed for the current and previous years.

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Tax liabilities (million €)

 

 

2008

2007

Tax provisions

257

347

Tax liabilities

603

534

 

860

881

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