Mazda 2007 Annual Report Download - page 77
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The net deferred tax assets are included in the following accounts in the consolidated balance sheets:
Thousands of
Millions of yen U.S. dollars
2006 2005 2006
As of March 31, 2007 March 31, 2006 March 31, 2007
Current assets—Deferred taxes ¥097,184 ¥094,685 $0,823,593
Investments and other assets—Deferred taxes 48,449 51,296 410,585
Current liabilities—Other (1) (1) (8)
Other long-term liabilities (145) (145) (1,229)
Net deferred tax assets ¥145,487 ¥145,835 $1,232,941
14. Prior Year Income Taxes
Prior year income taxes recorded in the year ended March 31, 2007 are primarily for the taxes that the
Company expects to pay on transactions between the Company and its domestic dealerships. The
Company bears part of the expenses that its dealerships incur for sales and promotional activities.
Recent internal investigation has unveiled transactions that are not deductible for the purpose of
income tax filing due to inappropriate documentation for invoices and payments as well as unclear
grounds for the determination of the amounts to be borne by the Company. As a result, the Company
has recognized the estimated additional taxes for the prior three years of ¥3,229 million ($27,364
thousand), as prior year income taxes in the consolidated statement of income for the year ended
March 31, 2007. The estimated amount of ¥3,229 million ($27,364 thousand) is net of deferred taxes
of ¥293 million ($2,483 thousand) on those portions of prefectural taxes that are deductible in the
future federal income tax filings.
Also, prior year income taxes recorded in the year ended March 31, 2006 are primarily for the taxes
expected to be reassessed on transactions between the Company and an overseas subsidiary. The
Company was audited by the Hiroshima Regional Taxation Bureau, and the Company expects that
the tax audit is likely to conclude in the near future. As a result of the tax audit, it is highly likely that
additional income taxes will be reassessed on transactions between the Company and an overseas
subsidiary, and the Company recognized the expected increase in tax with respect to the transactions as
prior year income taxes in the consolidated statement of income for the year ended March 31, 2006.
The Company plans to formally request for bilateral consultations between the two countries under the
applicable tax treaties for transfer pricing in order to obtain relief from double taxation.
15. Derivative Financial Instruments and Hedging Transactions
The Company and its consolidated subsidiaries use forward foreign exchange contracts and currency
option contracts as derivative financial instruments only for the purpose of mitigating future risks of
fluctuations in foreign currency exchange rates. Also, only for the purpose of mitigating future risks of
fluctuations in interest rates with respect to borrowings, the Company and its consolidated subsidiaries
use interest rate swap contracts.
Forward foreign exchange contracts and currency option and swap contracts are subject to risks of
foreign exchange rate changes. Interest rate swap contracts are subject to risks of interest rate changes.
The policies for derivative transactions of the Company and its consolidated subsidiaries are
determined by the Company’s president or chief financial officer. Derivative contracts are concluded
under the directions of the Company’s Financial Services Division in accordance with the established
rules of the Company. Derivative transactions are executed and the balances are managed by each
individual company; the president of each company is responsible for the inspection. Also, the