Reebok 2006 Annual Report Download - page 179

Notes ›175
Deferred tax assets and liabilities of the Group on a gross basis before valuation allowances
and before appropriate offsetting are attributable to the items detailed in the table below:
As a result of the acquisition of Reebok International Ltd. (USA) and its subsidiaries that was
accounted for under the purchase method (see Note 5) deferred tax liabilities were recorded
representing the difference between the book value and the tax basis of acquired assets.
The actual existing and unused accumulated tax loss carryforwards of the Group
amounted to € 156 million and € 47 million for the years ending December 31, 2006 and 2005,
respectively. The increase of € 109 million results for the most part from the acquisition of
Reebok and mainly relates to the effects of the acquisition on Reebok’s U.S. tax position.
Deferred tax assets are recognized only to the extent that the realization of the related
benefit is probable. Based on the past performance and the prospects of the respective busi-
ness for the foreseeable future, valuation allowances are established where this criterion is
not met.
Valuation allowances, which refer to deferred tax assets of companies whose realization
of the related tax benefits is not probable increased by € 46 million from December 31, 2005
to December 31, 2006. This increase mainly relates to unused foreign tax credits of Reebok
International Ltd. (USA), which expire in a relatively short period and cannot be carried for-
ward indefinitely. These amounts were mainly part of the opening balance of Reebok Inter-
national Ltd. (USA) as at January 31, 2006. Remaining valuation allowances relate to deferred
tax assets of companies operating in certain emerging markets, since the realization of the
related benefit is not considered probable.
The Group does not recognize deferred tax liabilities for unremitted earnings of non-German
subsidiaries to the extent that they are expected to be permanently invested in international
operations. These earnings, the amount of which cannot be practicably computed, could be-
come subject to additional tax if they were remitted as dividends or if the Group were to sell its
shareholdings in the subsidiaries.
Tax Expenses
Tax expenses are split as follows:
Current taxes in the amount of € 2 million which relate to net investment hedges have been cred-
ited directly to shareholders’ equity for the year ending December 31, 2005 (see also Note 24).
The effective tax rate of the adidas Group differs from an assumed tax rate of 40% as
follows:
For 2006, other non-deductible expenses include a tax benefit of € 21 million related to the
favorable resolution of international tax disputes for prior years.
Deferred Taxes € in millions
Dec. 31 Dec. 31
2006 2005
Non-current assets 58 19
Current assets 117 44
Accrued liabilities and provisions 136 145
Accumulated tax loss carry-forwards 156 47
467 255
Valuation allowances (67) (21)
Deferred tax assets 400 234
Non-current assets 500 19
Current assets 37 39
Untaxed reserves 0 4
Accrued liabilities and provisions 53 19
Deferred tax liabilities 590 81
Deferred tax assets, net (190) 153
Income Tax Expenses (Continuing Operations) € in millions
Year ending Dec. 31
2006 2005
Current tax expenses 213 295
Deferred tax expenses/(income) 14 (74)
Income tax expenses 227 221
Reconciliation of Tax Rate (Continuing Operations)
Year ending Dec. 31 Year ending Dec. 31
2006 2005
€ in millions in % € in millions in %
Expected income tax expenses 289 40.0 262 40.0
Tax rate differentials (109) (15.1) (76) (11.6)
Other non-deductible expenses 24 3.3 26 4.0
Losses for which benefits were
not recognizable and changes
in valuation allowances 15 2.0 6 0.9
Other, net 2 0.3 (1) (0.1)
221 30.5 217 33.2
Withholding tax expenses 6 0.9 4 0.5
Income tax expenses 227 31.4 221 33.7
› Notes to the Consolidated Income Statement