Chrysler 2005 Annual Report Download - page 219

218 Fiat S.p.A. Financial Statements at December 31, 2005 - N otes to the Financial Statements
03 Fiat S.p.A.
Derivative financial instruments
Derivative financial instruments are recorded at inception in the
memorandum accounts at their notional contract amount.
More specifically, derivative financial instruments classified as trading
instruments insofar as they do not satisfy the requirements for hedge
accounting treatment, are valued at their market value and the
differential, if negative compared to the contractual value, is recorded
in the income statement, under financial income and expenses, in
accordance with the principle of prudence. In contrast, for instruments
that can be classified as hedging, the effects of the transaction are
posted to the income statement in such a way as to offset the
effects of the hedged flows.
Income Statement
Dividends
Dividends are recorded in the year when declared by the paying
companies.
Financial income and expenses
Financial income and expenses are recorded on an accrual basis.
Costs relating to the sale of receivables of any type (with and
without recourse) and nature (trade, financial, other) are charged
to the income statement on an accrual basis.
Income taxes
Liability for corporate income taxes due for the fiscal year
is determined in accordance with current legislation.
Deferred tax assets and liabilities are determined on the basis
of the temporary differences that arise between asset and liability
items and the corresponding tax items.
In particular, deferred tax assets are recognised only when it is
reasonably certain that they will be recovered. Conversely, deferred
tax liabilities are not recognised if it is unlikely that the corresponding
obligations will in fact arise.
For a three-year period starting in 2004, Fiat S.p.A. and almost all
of its Italian subsidiaries have decided to participate in the national
tax consolidation program envisaged in Articles 117 and 129 of the
Consolidated Law on Income Tax (T.U.I.R.).
Fiat S.p.A. functions as a consolidating company and determines a
single taxable base for the group of companies participating in the
tax consolidation program, which thus benefits from the possibility of
setting off taxable income with tax losses on a single tax return.
Each company participating in the tax consolidation program
contributes its taxable income or loss to the consolidating company;
Fiat S.p.A. posts a credit in its favour for the IRES (corporate income
tax) to be paid. In contrast, for those companies that contribute tax
losses, Fiat S.p.A. posts a payable equal to the IRES on the portion
of the loss that is actually set off at the group level.