annual report 2004 - Severočeské doly a.s.

Reserve Fund
In accordance with Czech regulations, joint stock companies are required to establish a non-distributable reserve
fund for contingencies against possible future losses and other events. Contributions must be a minimum of 20%
of after-tax profit in the first year in which profits are made and 5% of profit each year thereafter, until the fund
reaches at least 20% of share capital. As of December 31, 2004 and 2003, the balance was CZK 1,537 million and
CZK 1,460 million, respectively, and is reflected as a component of retained earnings.
Net Profit per Share
2004 2003
Numerator – basic and diluted (CZK millions)
Net Profit 179 1,411
Denominator (shares)
Basic:
Weighted average shares outstanding 9,000,055 8,999,958
Diluted:
Adjusted weighted average shares 9,006,898 8,999,958
12. Income Taxes
Income Tax Legislation
Corporate income tax is calculated in accordance with Czech tax regulations at the rate of 28%. The corporate income
tax rate for 2005 and 2006 will be 26% and 24%, respectively.
The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities.
Applicable taxes include value-added tax, corporate tax, and payroll (social) taxes, together with others. In addition,
laws related to these taxes have not been in force for significant periods, in contrast to more developed market
economies. Accordingly, few precedents with regard to issues have been established. Often, differing opinions
regarding legal interpretations exist both among and within government ministries and organizations; thus, creating
uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples,
customs and currency control matters) are subject to review and investigation by a number of authorities, who
are enabled by law to impose extremely severe fines, penalties and interest charges. These facts create tax risks
in the Czech Republic substantially more significant than typically found in countries with more developed tax
systems. Management believes that it has adequately provided for tax liabilities in the accompanying financial
statements; however, the risk remains that those relevant authorities could take differing positions with regard
to interpretive issues and the effect could be significant.
Income Tax Provision
The components of the income tax provisions for the years ended December 31, 2004 and 2003 are as
follows (in CZK million):
2004 2003
Current 390 401
Deferred (318) 303
Total 72 704
Reconciliation of expected income tax expense to the actual tax expense is as follows (in CZK million):
2004 2003
Profit before income taxes 251 2,115
Statutory income tax rate 28% 31%
‘Expected’ income tax expense 71 655
Add/(deduct) the effect of:
Czech/IFRS accounting differences 31 36
Tax exempt income (24) (32)
Investment tax relief (8) (10)
Income already taxed (11) (20)
Final withholding income tax on security income 3 9
Tax credits (1) (41)
Additional tax assessments/(recoveries) (2) (4)
Change in tax rates 13 80
Other items, net — 31
Income taxes 72 704
Effective tax rate 28% 33%