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Seiko Epson Annual Report 2006 65
13. Income taxes:
Epson is subject to a number of different income taxes which, in the aggregate, resulted in a statutory income tax
rate in Japan of approximately 43.6% for the year ended March 31, 2004 and approximately 40.4% for each of the
years ended March 31, 2005 and 2006.
The significant components of deferred tax assets and liabilities at March 31, 2005 and 2006 were as follows:
Thousands of
Millions of yen U.S. dollars
March 31 March 31,
2005 2006 2006
Deferred tax assets:
Property, plant and equipment and intangible assets ¥ 15,629 ¥ 25,573 $ 217,698
Net operating tax loss carry-forwards 4,255 22,307 189,895
Accrued pension and severance costs 1,815 9,378 79,833
Inter-company profits on inventories and write downs 14,048 8,219 69,967
Devaluation of investment securities 5,467 5,940 50,566
Accrued warranty costs 4,856 5,663 48,208
Accrued bonuses 6,718 4,038 34,375
Accrued litigation and related expenses – 3,453 29,395
Others 15,374 24,159 205,661
Gross deferred tax assets 68,162 108,730 925,598
Less: valuation allowance (10,897) (26,648) (226,849)
Total deferred tax assets 57,265 82,082 698,749
Deferred tax liabilities:
Undistributed earnings of overseas subsidiaries and affiliates (18,799) (25,284) (215,238)
Net unrealized gains on other securities (1,384) (5,908) (50,293)
Reserve for special depreciation for tax purpose (3,807) (3,383) (28,799)
Net unrealized gains on land held by a subsidiary (–) (2,613) (22,244)
Others (507) (552) (4,699)
Gross deferred tax liabilities (24,497) (37,740) (321,273)
Net deferred tax assets ¥ 32,768 ¥ 44,342 $ 377,476
The valuation allowance was established mainly against deferred tax assets on future tax-deductible temporary
differences and operating tax loss carry-forwards as it is more likely than not that these deferred tax assets will not
be realized within the foreseeable future. The net change in the total valuation allowance for the year ended March
31, 2006 was an increase of ¥15,751 million ($134,085 thousand).
Epson has provided for deferred income taxes on all undistributed earnings of overseas subsidiaries and affiliates.