Chrysler 2006 Annual Report Download - page 59

Fiat Group Consolidated Financial Statements at December 31, 2006 -Notes 115
11. Income taxes
Income taxes consist of the following:
(in millions of euros) 2006 2005
Current taxes:
- IRAP 149 116
- Other taxes 346 184
Total Current taxes 495 300
Deferred taxes for the period (61) 425
Taxes relating to prior periods 56 119
Total Income taxes 490 844
In 2006, the decrease in the charge for income taxes reflects:
■the reduced effect arising from the realisation of deferred tax assets;
■adecrease in the level of taxes relating to prior periods;
■an increase in current taxes arising from the increase in operating results.
Deferred tax income of 61 million euros (net expense of 425 million euros in 2005) is the net effect of the recognition of deferred
tax during the year and the realisation of deferred tax assets recognised in prior years. Taxes relating to prior periods include the
cost of finalising certain disputes with foreign tax authorities.
The effective tax rate for 2006 (excluding IRAP) was 21% (which represents a considerable decrease over the corresponding rate
of 32% in 2005) and is the result of an increased utilisation of prior year tax losses and temporary differences for which no
deferred tax assets had been recognised in prior years.
The reconciliation between the tax charges recorded in the consolidated financial statements and the theoretical tax charge,
calculated on the basis of the theoretical tax rate in effect in Italy,is the following:
(in millions of euros) 2006 2005
Theoretical income taxes 542 747
Tax effect of permanent differences (2) (452)
Taxes relating to prior years 56 119
Effect of difference between foreign tax rates and the theoretical Italian tax rate (29) (3)
Effect of unrecognised deferred tax assets (189) 504
Use of tax losses for which deferred tax assets had not been recognised (50) (83)
Other differences 13 (104)
Current and deferred income tax recognised in the financial statements, excluding IRAP 341 728
IRAP 149 116
Income taxes recorded in financial statements (current and deferred income taxes) 490 844
Net financial expenses in 2006 (excluding financial services companies) totalled 576 million euros, decreasing from the 843 million
euros in 2005. The improvement over 2005 is a consequence of the lower level of debt in the Group’s Industrial Activities (amongst
other things, as a result of the conversion of the Mandatory Convertible Facility and the completion of the Italenergia Bis
operation, both of which took place in the third quarter of 2005), and net financial income of 71 million euros arising from the
equity swaps on Fiat shares, set up to support stock option plans (further details of this are provided in Note 22).
Interest earned and other financial income may be analysed as follows:
(in millions of euros) 2006 2005
Interest income from banks 106 41
Interest income from securities 17 25
Commissions 22
Other interest earned and financial income 170 190
Total Interest earned and other financial income 295 258
Interest and other financial expenses may be analysed as follows:
(in millions of euros) 2006 2005
Interest expenses on bonds 528 524
Bank interest expenses 307 397
Interest expenses on trade payables 10 11
Other interest and financial expenses 771 763
Total Interest and other financial expenses 1,616 1,695
Unusual financial income
In 2005 the item Unusual financial income consisted of income amounting to 858 million euros arising from the increase of capital
stock on September 20, 2005 and the simultaneous extinguishment of the Mandatory Convertible Facility (see Notes 25 and 28).
In particular, this income corresponded to the difference between the subscription price of 10.28 euros per share and the market
value of 7.337 euros per share at the subscription date, net of associated costs. This operation led to an increase in capital stock
of 1,459 million euros and in other equity reserves of 682 million euros.
10. Result from investments
This item includes the Group’s interest in the net result of the companies accounted for using the equity method, the write-downs
connected with the loss in value of financial assets and any reinstatement of value, the write-downs of equity investments
classified as held for sale, accruals to provisions against equity investments, income and expense arising from the adjustment
to fair value of investments in other entities held for trading, and dividend income. In particular, in 2006 there was a profit of
125 million euros representing the net result of companies accounted for using the equity method (profit of 115 million euros in 2005).
The net result from investments in 2006 amounts to 156 million euros (34 million euros in 2005) and includes (amounts in millions
of euros): Fiat Auto Sector companies 38 (57 in 2005), entities of Agricultural and Construction Equipment Sector companies 46 (39
in 2005), Iveco companies 31 (-51 in 2005) and other companies 41 (-11 in 2005).
Fiat Group Consolidated Financial Statements at December 31, 2006 -Notes 114