Volvo 2011 Annual Report Download - page 102

Volvo recognizes valuation allowances for deferred tax assets where man-
agement does not expect such assets to be realized based upon current
forecasts. In the event that actual results differ from these estimates or
adjustments are made to future periods in these estimates, changes in
the valuation allowance may be required, which could materially impact
the financial position and the income for the period. At December 31,
2011, the valuation allowance amounted to 263 (339) of the value of
deferred tax assets. Most of the reserve consists of unused loss carry-
forwards. Net of this valuation allowance, deferred tax assets of 18,552
(20,109) were recognized in the Group’s balance sheet.
Volvo has significant tax-loss carryforwards that are related to coun-
tries with long or indefinite periods of utilization, mainly Sweden, Japan
and France. Volvo considers it to be most certain that the Group will be
able to generate sufficient income in the coming years to utilize the tax-
loss carryforwards.
Income tax for the period includes current and deferred taxes. Current
taxes are calculated on the basis of the tax regulations prevailing in the
countries in which the Parent Company and subsidiaries are active and
generate taxable income.
Deferred taxes are recognized on differences that arise between the
taxable value and recognized value of assets and liabilities as well as on
tax-loss carryforwards. However, with regard to the measurement of
deferred tax assets, that is, the value of future tax reductions, these items
are recognized provided that it is probable that the amounts can be uti-
lized against future taxable income.
Deferred taxes on temporary differences on participations in subsidiar-
ies and associated companies are only recognized when it is probable
that the difference will be recovered in the near future.
Tax laws in Sweden and certain other countries allow companies to
defer payment of taxes through allocations to untaxed reserves. These
items are treated as temporary differences in the consolidated balance
sheet, meaning that deferred tax liability and equity capital are separated.
In the consolidated income statement an allocation to, or withdrawal from,
untaxed reserves is divided between deferred taxes and net income for
the year.
Income taxes were distributed as follows:
2011 2010
Current taxes relating to the period (5,331) (3,668)
Adjustment of current taxes for prior periods 76 180
Deferred taxes originated or reversed during
the period (1,584) (747)
Remeasurementsof deferred tax assets 25 (67)
Total income taxes (6,814) (4,302)
Provisions have been made for estimated tax charges that may arise as a
result of prior tax audits in the Volvo Group. Volvo evaluates tax processes
on a regular basis and makes provisions for possible outcome when it is
probable that Volvo will have to pay more taxes and when it is possible to
make a reasonably assessment of the possible outcome. Tax claims for
which no provision was deemed necessary were recognized as contingent
liabilities.
Deferred taxes amounting to 1 (93) have been recognized in other
comprehensive income, attributable to fair value of derivative instruments.
At year-end 2011, the Group had unused tax-loss carryforwards
amounting to 22,462 (24,869). These loss carryforwards expire accord-
ing to the table below:
Due date 2011 2010
2012 40 64
2013 77 50
2014 180 190
2015 434 363
2016 2,302 757
2017– 19,429 23,445
Total 22,462 24,869
The Swedish corporate income tax rate is 26.3%. The table below shows
the principal reasons for the difference between this rate and the Group’s
tax rate, based on income after financial items.
2011, % 2010, %
Swedish corporate income tax rate 26 26
Difference in tax rate in various countries 3 4
Other non-taxable income (3) (3)
Other non-deductible expenses 1 1
Current taxes attributable to prior years 0 (1)
Remeasurementof deferred tax assets 0 1
Income tax rate for the Group 27 28
INCOME TAXES
10
NOTE
ACCOUNTING POLICY
SOURCE OF UNCERTAINTY IN ESTIMATES
!
NOTES TO FINANCIAL STATEMENTS
FINANCIAL INFORMATION 2011
98