Reebok 2007 Annual Report Download - page 190

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ANNUAL REPORT 2007 --- adidas Group CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Income Statement - Notes – Additional Information
Gross Group deferred tax assets and liabilities before valuation allowances and appropriate off-
settings are attributable to the items detailed in the table below:
DEFERRED TAXES
€ in millions
Dec.
31
Dec. 31
2
007 2006
Non-current assets
Current assets
Accrued liabilities and provisions
Accumulated tax loss carry-forwards
Valuation allowances
Defe
rr
ed
t
a
x
asse
t
s
Non-current assets
Current assets
Accrued liabilities and provisions
D
eferred tax liabilitie
s
D
eferred tax assets
,
net
7
5
58
112
117
14
3
136
2
0
3
156
5
3
3
467
(
71
)
(67)
462 400
4
2
0
500
47
37
1
3
0 53
597 590
(135) (190
)
)
As a result of the acquisition of Reebok International Ltd. (USA) and its subsidiaries in 2006 that
was accounted for under the purchase method  see Note 4, deferred tax liabilities were recorded
as the difference between the carrying amount and the tax basis of acquired assets.
Group deferred tax assets recognized for actual existing and unused accumulated tax loss
carry-forwards amounted to € 203 million for the year ending December 31, 2007 and mainly
relate to the US tax group.
Deferred tax assets are recognized only to the extent that the realization of the related bene-
fi t is probable. Valuation allowances are established where this criterion is not met, based on the
past performance and the prospects of the respective business for the foreseeable future.
Valuation allowances, which relate to deferred tax assets of companies whose realization of
the related tax benefi ts is not probable, increased on a currency-neutral basis by € 4 million to
€ 71 million for the year ending December 31, 2007. These amounts mainly relate to unused
foreign tax credits of the US tax group, which expire in a relatively short period and cannot be
carried forward indefi nitely. Remaining valuation allowances relate to deferred tax assets of
companies operating in certain emerging markets, since the realization of the related benefi t 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 become
subject to additional tax if they were remitted as dividends or if the Group were to sell its share-
holdings in the subsidiaries.
TAX EXPENSES Tax expenses are split as follows:
INCOME TAX EXPENSES
€
in million
s
Year ending Dec. 31
2007
2006
Current tax expenses
Deferred tax expenses / (income)
Income tax ex
p
enses
2
86
213
(
26
)
14
7
260 227
The effective tax rate of the Group differs from an assumed tax rate of 40 % as follows:
Year ending Dec. 31
Year ending Dec. 31
2007
2006
€ in millions in %
€ in millions in %
Expected income tax expenses
Tax rate differentials
Other non-deductible expenses
Losses for which benefi ts were not recognizable
and changes in valuation allowances
Changes in tax rates
Other, net
Withholding tax expenses
I
ncome tax expenses
TAX RATE RECONCILIATION
326 40.0
0
289 40.0
(122) (15.0
0
)
)
(109) (15.1)
57 7.0
0
24 3.3
8 1.0
0
15 2.0
(19) (2.4
4)
)
— —
2 0.2
2
2 0.3
5
252 30.8 221 30.5
8
8 1.0
0
6 0.9
4
260 31.8 227 31.4
8
For 2006, other non-deductible expenses include a tax benefi t of € 21 million related to the
favorable resolution of international tax disputes for prior years.
In 2007, tax rate changes refl ect changes enacted in German and non-German tax rates
which were utilized for the calculation of the deferred tax assets and liabilities. The total change
relates mainly to a UK tax rate reduction effective in 2008.