Mercedes 2008 Annual Report Download - page 167

Consolidated Financial Statements |Notes to Consolidated Financial Statements |163
8. Income taxes
Profit before income taxes consists of the following:
The profit before income taxes in Germany includes the income
(loss) from companies accounted for using the equity method
if the shares of those companies are held by German companies.
Income tax expense is comprised of the following components:
The current tax expenses include benefits at German and foreign
companies of €106 million (2007: €679 million; 2006: €131 mil-
lion) recognized for prior periods.
The deferred tax expenses (benefits) are comprised of the follow-
ing components:
In 2007, the German government enacted new tax legislation
(“Unternehmensteuerreformgesetz 2008”) which, among other
changes, decreased the Group’s statutory corporate tax rate
for German companies from 25% to 15%, effective January 1,
2008. For trade taxes, the basic measurement rate was redu-
ced from 5% to 3.5% but the tax deductibility of trade tax was
abolished. The effect of the change in the tax rate on the
deferred tax assets and liabilities of the Group’s German compa-
nies was recognized in 2007, the year of enactment.
For German companies, the deferred taxes, were calculated
using a federal corporate tax rate of 15% (2006: 25%), a solidarity
tax surcharge of 5.5% for each year on federal corporate taxes
plus a trade tax of 14% (2006: after federal tax benefit rate of
12.125%). In total, the tax rate applied for the calculation of
German deferred taxes amounted to 29.825% (2006: 38.5%). For
non-German companies, the deferred taxes at period-end
were calculated using the tax rates of the respective countries.
A reconciliation of expected income tax expense to actual income
tax expense determined using the applicable German com-
bined statutory rate of 29.825% (2007 and 2006: 38.5%) is
included in the following table:
At December 28, 2007, the protocol amending the convention
between Germany and the United States for the avoidance of
double taxation entered into force, which, among other changes,
under certain circumstances abolishes withholding tax on divi-
dend distributions from a US subsidiary to a German holding com-
pany, effective January 1, 2007. The deferred tax liabilities
previously recorded by the Group for US withholding taxes on the
future payout of dividends by US subsidiaries to Germany were
reversed in 2007. Furthermore, US withholding taxes paid by the
Group in 2007 was added back again. In total, both caused
an income tax benefit amounting to €168 million in 2007, includ-
ed in the line tax law changes. Additionally, the line tax law
changes includes the deferred tax benefit of €51 million due to
the revaluation of the net deferred tax liabilities of the German
companies as a result of the above mentioned new German tax
law 2008 and other effects from tax law changes at foreign
companies.
2006
20072008
in millions of €
4,283
(1,488)
2,795
6,768
2,413
9,181
2,127
2,775
4,902
Germany
Non-German countries
200620072008
in millions of €
238
650
964
(761)
1,091
44
934
1,060
2,288
4,326
635
1,115
7
(21)
1,736
Current taxes
Germany
Non-German countries
Deferred taxes
Germany
Non-German countries
200620072008
in millions of €
203
232
(29)
3,348
3,465
(117)
(14)
(373)
359
Deferred taxes
due to temporary differences
due to tax loss carry forwards
and tax credits
200620072008
834
(265)
( 111 )
4
314
243
72
1,091
3,535
(193)
(101)
(170)
2,354
(1,044)
(55)
4,326
1,887
(83)
(28)
(4)
213
(208)
(41)
1,736
Expected income tax expense
Foreign tax rate differential
Trade tax rate differential
Tax law changes
Change of valuation allowance on
deferred tax assets
Tax-free income and
non-deductible expenses
Other
Actual income tax expense
in millions of €