10 Income tax income/expense

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COMPONENTS OF TAX INCOME AND EXPENSE
€ million		2011		2010
Current tax expense, Germany		2,758		1,719
Current tax expense, abroad		1,673		1,536
Current tax expense		4,431		3,255
of which prior-period income		(–7)		(–55)
Income from reversal of tax provisions		–80		–292
Current income tax expense		4,351		2,963
Deferred tax income/expense, Germany		–799		–427
Deferred tax income/expense, abroad		–425		–768
Deferred tax income		–1,225		–1,196
Income tax income/expense		3,126		1,767

In Germany, current tax expense is calculated on the basis of a uniform corporation tax rate of 15% (previous year: 15%) plus a solidarity surcharge of 5.5% of this figure. In addition to corporation tax, trade tax is levied on profits generated in Germany. Due to the nondeductibility of trade tax as a business expense from fiscal year 2008, the average trade tax rate is 13.7%, which results in a total domestic tax rate of 29.5%.

The local income tax rates applied for companies outside Germany vary between 0% and 42%. In the case of split tax rates, the tax rate applicable to undistributed profits is applied.

The realization of tax benefits from tax loss carryforwards from previous years resulted in a reduction in current income taxes in 2011 of €419 million (previous year: €487 million).

Previously unused tax loss carryforwards amounted to €8,628 million (previous year: €8,311 million). Tax loss carryforwards amounting to €6,742 million (previous year: €6,629 million) can be used indefinitely, while €582 million (previous year: €685 million) must be used within the next ten years. There are additional tax loss carryforwards amounting to €1,304 million (previous year: €997 million) that can be used within a period of 15 or 20 years. Tax loss carryforwards of €5,547 million (previous year: €5,427 million) are estimated not to be usable.

The increase in tax loss carryforwards estimated not to be usable amounting to approximately €5 billion in fiscal 2010 resulted primarily from a unit in the Scania subgroup. As the unit is not currently forecast to generate sufficient profit in relation to this amount, no corresponding deferred tax assets have been recognized.

The benefit arising from previously unrecognised tax losses or tax credits of a prior period that is used to reduce current tax expense amounts to €169 million (previous year: €84 million). Deferred tax expense of €23 million (previous year: €58 million) was reduced because of a benefit arising from previously unrecognized tax losses and tax credits of a prior period. Deferred tax expense arising from the write-down of deferred tax assets amounts to €86 million (previous year: €17 million).

Deferred taxes are recognized where income from subsidiaries was tax-exempt in the past due to specific local regulations, and the tax effects on discontinuation of the temporary tax exemption are foreseeable. Tax benefits amounting to €209 million (previous year: €76 million) were recognized because of tax credits granted by various countries to compensate for the loss of tax relief where the amounts involved were unlimited. Tax credits granted for other reasons amounted to €470 million (previous year: €126 million).

No deferred tax assets were recognized for deductible temporary differences of €159 million (previous year: €2 million) and for tax credits of €437 million (previous year: €563 million) that would expire in the period from 2012 to 2024.

Due to the change in the statutory provisions in Germany, a refund claim for corporation tax was recognized as a current tax asset for the first time in fiscal year 2006. It was recognized in the balance sheet under current tax receivables at a present value of €951 million. The present value of the refund claim was €725 million at the balance sheet date.

Deferred tax income resulting from changes in tax rates amounted to €41 million at Group level (previous year: deferred tax expenses of €20 million).

Deferred taxes of €439 million (previous year: €605 million) were recognized without being offset by deferred tax liabilities in the same amount. The companies concerned expect positive tax income in future following losses in the fiscal year under review or in the previous year.

€1,790 million of the deferred taxes recognized in the balance sheet was credited to equity (previous year: €943 million) and relates to other comprehensive income. €37 million of this figure (previous year: €14 million) is attributable to noncontrolling interests. In the fiscal year under review, deferred taxes declined by €2 million (previous year: €– million) due to the effects of capital transactions with noncontrolling interests. Changes in deferred taxes classified by balance sheet item are presented in the statement of comprehensive income.

In the previous year, tax effects of €35 million resulting from equity transaction effects were credited directly to the capital reserves.

Deferred taxes recognized directly in equity in the fiscal year are presented in detail in the statement of comprehensive income.

DEFERRED TAXES CLASSIFIED BY BALANCE SHEET ITEM

The following recognized deferred tax assets and liabilities were attributable to recognition and measurement differences in the individual balance sheet items and to tax loss carryforwards:

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		Deferred tax assets				Deferred tax liabilities
€ million		Dec. 31, 2011		Dec. 31, 2010		Dec. 31, 2011		Dec. 31, 2010
Intangible assets		348		311		4,568		2,323
Property, plant and equipment, and leasing and rental assets		3,287		4,019		3,958		3,315
Noncurrent financial assets		33		536		23		29
Inventories		1,345		269		532		443
Receivables and other assets (including Financial Services Division)		1,228		1,110		5,136		5,234
Other current assets		1,113		303		199		51
Pension provisions		2,279		1,703		270		4
Liabilities and other provisions		6,374		4,771		374		308
Tax loss carryforwards		938		920		–		–
Valuation allowances on other deferred tax assets		–84		–		–		–
Gross value		16,862		13,942		15,059		11,706
of which noncurrent		(10,720)		(9,558)		(12,059)		(8,710)
Offset		11,285		10,205		11,285		10,205
Consolidation		756		510		351		167
Amount recognized		6,333		4,248		4,125		1,669

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RECONCILIATION OF EXPECTED TO EFFECTIVE INCOME TAX
€ million		2011		2010
Profit before tax		18,926		8,994
Expected income tax expense (tax rate 29.5%; previous year: 29.5%)		5,583		2,653
Reconciliation:
Effect of different tax rates outside Germany		–38		–158
Proportion of taxation relating to:
tax-exempt income		–693		–678
expenses not deductible for tax purposes		189		157
effects of loss carryforwards and tax credits		–102		–125
temporary differences for which no deferred taxes were recognized		–1,839		48
Tax credits		–51		–107
Prior-period tax expense		–6		–164
Effect of tax rate changes		–41		20
Other taxation changes		124		121
Effective income tax expense		3,126		1,767
Effective tax rate (%)		16.5		19.7