Mercedes 1998 Annual Report Download - page 87

German corporate tax law applies a split-rate imputation with
regard to the taxation of the income of a corporation and its
shareholders. In accordance with the tax law in effect for fiscal
1998, retained corporate income is initially subject to a federal
corporate tax of 45% plus a solidarity surcharge of 5.5% (1997
and 1996: 7.5%) on federal corporate taxes payable. Including
the impact of the surcharge, the federal corporate tax rate
amounts to 47.475% (1997 and 1996: 48.375%). Upon
distribution of certain retained earnings to stockholders, the
corporate income tax rate on the earnings is adjusted to 30%,
plus a solidarity surcharge of 5.5% (1997 and 1996: 7.5%) on
the distribution corporate tax, for a total of 31.65% (1997 and
1996: 32.25%), by means of a refund for taxes previously paid.
Upon distribution of retained earnings in the form of a
dividend, stockholders who are taxpayers in Germany are
entitled to a tax credit in the amount of federal income taxes
previously paid by the corporation.
For German companies, the deferred taxes for 1998 and 1997
are calculated using an effective corporate income tax rate of
47.475% plus the after federal tax benefit rate for trade tax of
8.525%. The effect of the tax rate reduction on year-end 1997
deferred tax balances is reflected in the reconciliation of 1997
presented below.
A reconciliation of income taxes determined using the German
corporate tax rate of 47.475% plus the after federal tax benefit
rate for trade taxes of 8.525% for a combined statutory rate of
56% in 1998 (1997 and 1996: 57%) is as follows:
19971998
Year ended December 31,
Expected provision for income taxes 4,566 3,522 3,245
Change in tax rate for deferred taxes, domestic –68 –
Credit for dividend distributions (515) (1,624) (85)
Foreign tax rate differential (985) (797) (993)
Release of valuation allowances on Group’s
German deferred tax assets as of
December 31, 1997 – (1,003) –
Changes in valuation allowances on German
deferred tax assets 112 (465) (533)
Write-downs of investments, different for
tax purposes (18) (240) (106)
Amortization of non-tax-deductible goodwill 78 55 29
Other (163) 2 (10)
Actual provision (benefit) for income taxes 3,075 (482) 1,547
1996
The 1998 income tax credit from dividend distributions
amounted to € 515 and reflected mainly the tax benefit from
the dividend distribution of € 2.35 per Ordinary Share/ADS.
The 1997 income tax credit from dividend distributions
amounted to € 1,624 and reflected primarily a tax benefit of €
1,487 from the special distribution. This benefit resulted from
the refund of taxes previously paid on undistributed profits at a
rate of 50% in excess of the effective tax rate of 30% on
distributed profits.
In 1997, the decrease in the consolidated domestic valuation
allowances was due in part to € 465 utilization of tax loss
carryforwards. Additionally, € 1,003 was due to the reversal of
the remaining valuation allowances as of December 31, 1997
for the German companies included in the filing of a combined
tax return (“Organschaft”) on the basis that the current and the
expected results of operations supported a conclusion that it
was more likely than not that the deferred tax assets would be
realized.
During 1997, the Group sold its investment in Cap Gemini
Sogeti S.A. and realized a gain of € 420 in its consolidated
financial statements which was not taxable since write-downs
were previously not recognized for tax purposes.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS