Honda 2007 Annual Report Download - page 97
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95
U.S. dollars
(millions) (note 2)
Income taxes
Income before
income taxes Current Deferred Total
2007:
Japanese $1,545 $0,755 $(117) $0,638
Foreign 5,171 1,789 (23) 1,766
$6,716 $2,544 $(140) $2,404
* See note 3.
The statutory income tax rate is approximately 40% for each of the years in the three-year period ended March 31, 2007. The
foreign subsidiaries are subject to taxes based on income at rates ranging from 16% to 40%.
The effective tax rate for Honda for each of the years in the three-year period ended March 31, 2007 differs from the
Japanese statutory income tax rate for the following reasons:
2005 2006 2007
Statutory income tax rate 40.0% 40.0% 40.0%
Valuation allowance provided for current year operating losses of subsidiaries 0.5 0.3 0.4
Difference in statutory tax rates of foreign subsidiaries (1.9) (2.3) (3.7)
Reversal of valuation allowance due to utilization of operating loss carryforwards (1.1) (0.8) (0.2)
Research and development credit (2.3) (3.0) (3.3)
Tax authority assessment relating to prior years* 1.8 — —
Other adjustments relating to prior years — 3.1 —
Other 2.9 0.9 2.6
Effective tax rate 39.9% 38.2% 35.8%
* The prior year income taxes in 2005 are due to assessment by the Japanese tax authorities as a result of their transfer pricing audit relating to
the Company’s motorcycle business in Brazil.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
at March 31, 2006 and 2007 are presented below:
U.S. dollars
Yen (millions)
(millions) (note 2)
2006 2007 2007
Deferred tax assets:
Inventories ¥(030,012 ¥0(35,114 $(0,297
Allowance for dealers and customers 141,141 153,328 1,299
Accrued bonus 35,968 40,628 344
Property, plant and equipment 17,817 61,409 520
Foreign tax credit 9,267 10,427 88
Operating loss carryforwards 75,131 39,781 337
Minimum pension liabilities adjustment 68,566 ——
Pension and other postretirement benefits 62,829 210,378 1,782
Other 121,951 141,104 1,196
Total gross deferred tax assets 562,682 692,169 5,863
Less valuation allowance 70,239 35,447 300
Net deferred tax assets 492,443 656,722 5,563