Volvo 2005 Annual Report Download - page 107

Volvo Group 2005 103
Note 12 Income taxes
Income taxes were distributed as follows:
2004 2005
Current taxes relating to the period (1,854) (2,568)
Adjustment of current taxes for prior periods 288 147
Deferred taxes originated or reversed
during the period (1,662) (2,933)
Recognition and derecognition of
deferred tax assets 99 446
Total income taxes (3,129) (4,908)
Provisions have been made for estimated tax charges that may arise
as a result of prior tax audits in the Volvo Group. Tax claims for which
no provision has been deemed necessary of approximately 695
(1,433) were reported as contingent liabilities.
Deferred taxes relate to income taxes payable or recoverable in
future periods in respect of taxable temporary differences, deducti-
ble temporary differences, unused tax loss carryforwards or unused
tax credit carryforwards. Deferred tax assets are recognized to the
extent that it is probable that the amount can be utilized against
future taxable income. At December 31, 2005, the valuation allow-
ance attributable to deductible temporary differences, unused tax
loss carryforwards and unused tax credit carryforwards for which no
deferred tax asset was recognized amounted to 2,972 (2,592).
At year-end 2005, the Group had unused tax loss carryforwards
of about 6,100 (10,100), of which approximately 1,400 (1,900) will
expire within 5 years.
The Swedish corporate income tax rate is 28%. The table below
shows the principal reasons for the difference between this rate and
the Group’s tax rate, based on income after fi nancial items.
2004, % 2005, %
Swedish corporate income tax rates 28 28
Difference in tax rate in various countries 3 3
Capital gains (3) (1)
Other non-taxable income (3) (1)
Other non-deductible expenses 2 1
Adjustment of current taxes for prior years (2) (1)
Recognition and derecognition of
deferred tax assets (1) (2)
Other, net 0 0
Income tax rate for the Group 24 27
Specifi cation of deferred tax assets
and tax liabilities 2004 2005
Deferred tax assets:
Unused tax loss carryforwards 3,223 2,125
Other unused tax credits 259 295
Intercompany profi t in inventories 294 544
Valuation allowance for doubtful receivables 587 644
Provisions for warranties 966 1,449
Provision for residual value risks 544 576
Provisions for
post-employment benefi ts 4,366 4,541
Provisions for restructuring measures 220 120
Fair value of derivative instruments:
Change of hedge reserves – 224
Other deductible temporary differences 2,347 2,670
12,806 13,188
Valuation allowance (2,592) (2,972)
Deferred tax assets after
deduction for valuation allowance 10,214 10,216
Deferred tax liabilities:
Accelerated depreciation on property,
plant and equipment 2,047 2,347
Accelerated depreciation on
leasing assets 815 1,297
LIFO valuation of inventories 160 217
Capitalized product and software
development 1,445 1,970
Untaxed reserves 126 112
Fair value of derivative instruments:
Change of hedge reserves – 95
Other taxable temporary differences 1,058 1,111
5,651 7,149
Deferred tax assets, net
1 4,563 3,067
1 Deferred taxes are partially recognized in the balance sheet on a net basis
after taking into account offsetting possibilities.
The cumulative amount of undistributed earnings in foreign subsidi-
aries, which Volvo currently intends to indefi nitely reinvest outside of
Sweden and upon which deferred income taxes have not been pro-
vided is approximately 16,810 (12,211) at year end. There are differ-
ent taxation rules depending on country, some which have no tax
effect and some countries with withholding taxes. See note 36 how
Volvo handles equity currency risk.
Note 11Other fi nancial income and expenses
Other fi nancial income and expenses in 2004 include a write-down
of 1,196, pertaining to the restructuring of Henlys Group Plc, note
15. The net amount of exchange losses were 20 (1). As from 2005
revaluation of derivatives related to Volvo’s funding portfolio is
accounted for as other fi nancial income and expenses, 251 (–).