BMW 2006 Annual Report Download - page 84

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the expectation that a greater volume of tax losses
will be utilisable, especially in the United Kingdom.
Tax losses available for carryforward, which for the
most part can be carried forward without restriction,
totalled euro 1.7 billion at the year-end (31.12.2005:
euro 2.1 billion). A valuation allowance of euro 65 mil-
lion (2005: euro 188 million) was recognised in
2006 on deferred tax assets relating to tax losses.
Deferred tax assets of euro 463 million (31.12.2005:
euro 453 million) relating to capital losses in the
United Kingdom of euro 1.5 billion (unchanged) were
written down in full since these losses can only be
offset
against capital gains, but not against operating
profits.
The increase of deferred tax assets relating
to liabilities was due primarily to the higher level of
other liabilities and the related increase in temporary
differences.
Deferred taxes recognised directly in equity
amounted to euro 512 million (31.12.2005: euro 727
million), whereby the decrease was mainly due to
actuarial gains and losses arising in conjunction with
pension obligations. The level of actuarial gains and
losses in 2006 was affected in particular by the in-
crease in the discount factors applied.
Deferred taxes are not recognised on retained
profits of euro 13,866 million (31.12.2005: euro
12,413 million) of foreign subsidiaries, as it is intended
to invest these profits to maintain and expand the
business volume of the relevant companies.
A computation was not made of the potential impact
of income taxes on the grounds of disproportionate
expense.
The tax returns of the BMW Group entities are
checked regularly by German and foreign tax author-
ities. Taking account of a variety of factors – including
existing interpretations, commentaries and legal de-
cisions relating to the various tax jurisdictions and
the BMW Group’s past experience – adequate provi-
sion has, as far as identifiable, been made for poten-
tial future tax obligations.
The actual tax expense for the financial year 2006
of euro 1,250 million (2005: euro 1,048 million) is
euro 354 million (2005: euro 231 million) lower than
the expected tax expense of euro 1,604 million (2005:
euro 1,279 million) which would theoretically arise
if the tax rate of 38.9% (unchanged), applicable for
German companies, was applied across the Group.
The difference between the expected and actual
tax expense is attributable to the following:
in euro million 2006 2005
Expected tax expense 1,604 1,279
Variances due to different tax rates –213 –123
Tax reductions (–)/tax increases (+) as a result of non-taxable income and
non-deductible expenses –68 158
Tax expense (+)/benefits (–) for prior periods –94 –232
Other variances 21 –34
Actual tax expense 1,250 1,048
The slightly lower effective tax rate is partially
due to lower nominal tax rates in a number of coun-
tries. The tax-exempt gain on the partial settlement
of the exchangeable bond on shares in Rolls-Royce
plc, London, also had an impact. Furthermore, legis-
lation relating to the taxation of retained earnings in
Germany has changed as a result of §37 (5) of the
German Corporation Tax Act (new version). For this
reason, the present value of the tax reimbursements
arising under the new rules was recognised as an
asset for the first time in 2006.