RETALIX LTD.

NOTE 10 – TAXES ON INCOME (continued):
RETALIX LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
c. Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (“the Inflationary
Adjustments Law”)
Under the Inflationary Adjustments law, results for tax purposes are measured in real terms, having regard to the changes in the
Israeli CPI. The Israeli companies in the Group are taxed under this law. These financial statements are presented in dollars. The
difference between the changes in the Israeli CPI and the exchange rate of the dollar, both on an annual and a cumulative basis
causes a difference between taxable income and income reflected in these financial statements. Paragraph 9(f) of FAS No. 109,
“Accounting for Income Taxes”, prohibits the recognition of deferred tax liabilities or assets that arise from differences between
the financial reporting and tax bases of assets and liabilities that are remeasured from the local currency into dollars using
historical exchange rates, and that result from changes in exchange rates or indexing for tax purposes. Consequently, the
abovementioned differences were not reflected in the computation of deferred tax assets and liabilities.
d. Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
The Company is an “industrial company” as defined by this law and as such is entitled to certain tax benefits, consisting mainly
of accelerated depreciation and the right to claim expenses in connection with issuance of its shares to the public, as well as the
amortization of patents and certain other intangible property rights, as a deduction for tax purposes.
e. Tax rates applicable to income from other sources:
Income of the Company and its Israeli subsidiaries, not eligible for approved enterprise benefits for each of the years ended
December 31, 2005, 2004 and 2003, is taxed at the regular rate of 34%, 35% and 36%, respectively.
f. Carryforward tax losses:
Carryforward tax losses of certain subsidiaries as of December 31, 2005 and 2004 aggregate approximately $51,111,000 and
$10,690,000, respectively.
Under the Inflationary Adjustments Law, carryforward tax losses related to the Israeli subsidiaries are linked to the Israeli CPI.
Carryforward tax losses in Israel may be utilized indefinitely.
At December 31, 2005, one of the Company’s U.S. subsidiaries has U.S. federal net operating loss carryforwards of
approximately $46,700,000. Federal net operating loss carrryforwards expire at various dates from 2007 through 2025. The
Company has state net operating loss carryforwards of approximately $30,500,000. State net operating loss carryforwards expire
at various dates from 2006 through 2025. Utilization of the Company’s federal and state net operating losses attributable
to acquired subsidiaries, approximately $32,500,000 and $16,300,000, respectively, are subject to an annual limitation under
Internal Revenue Code (“IRC”) section 382 determined by multiplying the value of the subsidiary stock at the time of
acquisition by the applicable long-term tax exempt rate. The benefit from utilization of $35 million US carryforward tax losses
will be credited to goodwill upon utilization.
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