Mercedes 2010 Annual Report Download - page 198

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In 2010, the increase in deferred tax assets, net, amounted to
€214 million (2009: €621 million) and was composed of:
2010 2009
In millions of euros
Deferred tax expense (2009: tax benefit) -253 549
Deferred tax benefit (2009: tax expense)
on financial assets available-for-sale charged
or credited directly to related components of equity
7
-8
Deferred tax benefit on derivative financial
instruments charged or credited directly to
related components of equity
212
123
Income tax expense (2009: benefit) for deduction
in excess of compensation expense for
equity-settled employee stock option plans
-1
.
Other neutral changes 1249 -43
1 Primarily effects from currency translation.
Including the items charged or credited directly to related com-
ponents of equity without an effect on earnings (including items
charged or credited from investments accounted for using the
equity method), the expense for income taxes consists of the
following:
2010 2009
In millions of euros
Income tax expense -1,954 -346
Income tax benefit recorded in other reserves 427 60
Income tax expense (2009: benefit) for deduction
in excess of remuneration expense for
equity-settled employee stock option plans
-1
.
-1,528 -286
The valuation allowances relate to deferred tax assets of foreign
companies and – although income tax benefits from the reversal
of valuation allowances of €259 million were recorded in net
profit/loss – increased in the statement of financial position
by €482 million from December 31, 2009 to December 31, 2010.
This is on the one hand a result of the neutral increase due to
currency translation effects. On the other hand, additionally capital
losses resulted out of our former investment Chrysler. Due to
the valuation allowance on those capital losses, the additional
capital loss and the valuation allowance did not affect net profit.
The deferred tax assets on capital losses were completely adjusted
by valuation allowances; the carry forward periods of those losses
are limited and can only be used by capital gains.
At December 31, 2010, the valuation allowance on deferred tax
assets relates, among other things, to capital losses (€1,335
million), to corporate tax net operating losses (€1,107 million) and
to tax credit carryforwards (€427 million). Of the total amount
of deferred tax assets adjusted by a valuation allowance, deferred
tax assets for capital losses amounting to €1,233 million expire
in 2014 and €102 million expire in 2015 and deferred tax assets
for corporate tax net operating losses amounting to €157 million
expire in 2011, €227 million expire in 2012, €205 million expire
in 2013, €15 million expire in 2014, €267 million expire in 2015,
€129 million expire at various dates from 2016 through 2030 and
€107 million can be carried forward indefinitely. Of the deferred
tax assets for tax credit carryforwards adjusted by a valuation
allowance €154 million expire at various dates from 2012 through
2015, €5 million expire at various dates from 2016 through 2030
and €268 million can be carried forward indefinitely. Further-
more, the valuation allowance primarily relates to temporary
differences and net operating losses for state and local taxes
at the US companies. Daimler believes that it is more likely than
not that those deferred tax assets cannot be utilized. In 2010
and prior years, respectively, the Group had taxable losses in sev-
eral subsidiaries in some countries. After offsetting the deferred
tax assets with deferred tax liabilities, the deferred tax assets
not subject to valuation allowances amounted to €1,089 million
for those foreign subsidiaries. Daimler believes it is more likely
than not that due to future taxable income, deferred tax assets
which are not subject to valuation allowances can be utilized.
In future periods Daimler’s estimate of the amount of deferred
tax assets that are considered realizable may change, and hence
the valuation allowances may increase or decrease.
Daimler recorded deferred tax liabilities for German tax of €50
million (2009: €46 million) on €3,323 million (2009: €3,082 million)
in cumulative undistributed earnings of non-German subsidiar-
ies on the future payout of these foreign dividends to Germany
because, as of today, the earnings are not intended to be perma-
nently reinvested in those operations.
The Group did not recognize deferred tax liabilities on retained
earnings of non-German subsidiaries of €9,578 million
(2009: €6,413 million) because these earnings are intended
to be indefinitely reinvested in those operations. If the dividends
are paid out, an amount of 5% of the dividends will be taxed under
the German taxation rules and, if applicable, with non-German
withholding tax. Additionally, income tax consequences could
arise if the dividends first had to be distributed by a non-German
subsidiary to a non-German holding company. Normally, the distri-
bution would lead to an additional income tax expense. It is not
practicable to estimate the amount of taxable temporary differ-
ences for these undistributed foreign earnings.
The Group has various unresolved issues concerning open income
tax years with the tax authorities in a number of jurisdictions.
Daimler believes that it has recognized adequate provisions for
any future income taxes that may be owed for all open tax years.