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10. Income Taxes
Income taxes applicable to the Company and its domestic subsidiaries 2004. Overseas subsidiaries are subject to the income taxes of the countries
comprise corporate tax, inhabitants’ tax and enterprise tax which, in the
in which they operate.
aggregate, resulted in statutory tax rates of 40.33% for the years ended The effective tax rates for the years ended March 31, 2006 and 2005
March 31, 2006 and 2005 and 40.27% for the year ended March 31, differ from the Company’s statutory tax rate for the following reasons:
2006 2005
Statutory tax rate 40.33% 40.33%
Corporate tax credit (1.48) —
Permanently non-deductible expenses such as entertainment expenses — 0.61
Equity in earnings of an affiliate (0.66) (0.64)
Loss on revaluation of investments in affiliates 6.28 (5.91)
Loss on impairment of fixed assets 5.93 —
Valuation allowance — 2.52
Difference in consolidated subsidiaries’ applicable tax rate (1.76) —
Other (0.11) 0.93
Effective tax rates 48.53 37.84
Reconciliation of the statutory tax rate to the effective tax rate for the year
ended March 31, 2004 was not presented, since the difference was less
than five percent of the statutory tax rate.
The tax effects of temporary differences which gave rise to significant
portions of the deferred tax assets at March 31, 2006 and 2005 are presented
below:
Deferred tax assets:
Unrealized losses on securities
Accrued retirement benefits to employees
Accounts payable
Loss on impairment of fixed assets
Accrued retirement benefits to directors and statutory auditors
Accrued bonuses
Allowance for doubtful receivables
Depreciation and amortization
Tax loss carry forwards of consolidated subsidiaries
Other
Total gross deferred tax assets
Less: Valuation allowance
Deferred tax assets
Millions of yen
Thousands of
U.S. dollars
2006 2005 2006
¥ 6,084
4,701
3,263
1,208
726
1,134
1,062
627
6,080
1,318
26,203
(12,196)
14,007
¥ 4,604
5,462
3,119
—
2,225
996
1,038
608
7,463
1,831
27,346
(9,581)
17,765
$ 51,792
40,019
27,777
10,283
6,180
9,654
9,040
5,338
51,758
11,220
223,061
(103,822)
119,239
Deferred tax liabilities:
Deferred capital gain on properties
Unrealized holding gain on securities
Other
Deferred tax liabilities
Net deferred tax assets
¥
(1,984)
(6,746)
(483)
(9,213)
4,794 ¥
(1,985)
(4,187)
(1,307)
(7,479)
10,286 $
(16,890)
(57,427)
(4,112)
(78,429)
40,810
Note: Deferred income tax –non-current liabilities of ¥1,871 million (US$15,927 thousand) and ¥51 million were included in the other long-term liabilities presented in the consolidated balance sheets as
of March 31, 2006 and 2005, respectively.
Deferred income tax –current liabilities of ¥2 million was included in the other current liabilities presented in the consolidated balance sheet as of March 31, 2005.
Effective April 1, 2003, the statutory tax rate for the calculation of deferred
income taxes had changed from 40.27% to 40.33%. The effect of this
change on the deferred income taxes and income taxes deferred was
minor for the year ended March 31, 2004.
40 ANNUAL REPORT 2006