Deferred Taxes

Question 1

The goal for the calculation of deferred income taxes?

Answer 1

Match the tax expense at group level with the pre-tax income at group level

Question 2

What are deferred taxes based on?

Answer 2

Deferred taxes are based on temporary differences that arise when taxation authorities recognize and measure assets and liabilities with rules that differ from the principles of the CFS’.

Question 3

Two types of differences to be distinguished?

Answer 3

such differences arrise between the local single financial statements for tax purposes and the reporting-package for consolidation purposes or the group consolidated financial statements.

Question 4

Differences

Answer 4

Question 5

What is permanent differences?

Answer 5

Differences between the single financial statements and the group consolidated F/S which are not time-limited.

Examples.
1. Expenses that are not tax deductible based on local law
2. income that is tax-exempt
3. depreciation charges on goodwill(unless push-down accounting was applied and local tax regulations allow tax-deductions on goodwill)

–> such permanent differences do NOT lead to deferred taxes.

Question 6

What are temporary differences?

Answer 6

Differences between the single financial statements and the group consolidated F/S which are time-limited (cancel out automatically over time)

Examples.
–> higher depriciation in single financial statements
–> elimination charges for intra-group profits
–> elimination of internal dividend distribution
–> apllication of equity accounting etc.

Such temporary differences should be considered by calculating deferred taxes upon these.

Question 7

Concept of Deferred taxes

Answer 7

Question 8

Type of differences

Answer 8

Question 9

Temporary differences chart

Answer 9

Question 10

Example part 1

Answer 10

Question 11

Example part 2

Answer 11

Question 12

Example part 3 (answer)

Answer 12