FINANCIAL STATEMENTS - KPN

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[5] Other operating expenses In 2012, Other operating expenses comprised an addition to the restructuring provision EUR 173 million (2011: EUR 130 million). For more details, reference is made to Note 23. Auditor’s fees The fees listed below relate to the procedures applied to the Company and its consolidated group entities by PricewaterhouseCoopers Accountants N.V., the Netherlands, the external auditor as referred to in Section 1(1) of the Dutch Accounting Firms Oversight Act (Dutch acronym: Wta), as well as by other Dutch and foreign-based PricewaterhouseCoopers individual partnerships and legal entities, including their tax services and advisory groups: Amounts in millions of EUR 2012 2011 Financial statements audit fees 7.9 9.0 Other assurance fees 3.5 2.3 Tax fees 1.2 1.3 All other fees 0.5 0.5 Total 13.1 13.1 The total fees of PricewaterhouseCoopers Accountants N.V., the Netherlands, charged to the Company and its consolidated group entities amounted to EUR 10.1 million in 2012 (2011: EUR 10.2 million). The financial statements audit fees include the aggregate fees billed in each of 2012 and 2011 for professional services rendered for the audit of KPN’s annual financial statements and annual statutory financial statements of subsidiaries or services that are normally provided by the auditor in connection with the audits. The other assurance fees include the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of KPN’s financial statements and are not reported under audit services. This includes revenue, IT related assurance services and regulatory related assurance services. Other fees relate to permitted services not included in the above categories. [6] Financial income and expenses Amounts in millions of EUR 2012 2011 Finance income 39 32 Interest on borrowings -693 -662 Interest on provisions -7 -9 Other -32 -19 Finance costs -732 -690 Amortizable part of hedge reserve [19] -6 -6 Ineffective portion of fair value hedges – -36 Financial instruments not qualified for hedge accounting -40 11 Exchange rate differences -5 -4 Other -100 -61 Other financial results -151 -96 Total -844 -754 [..] Bracketed numbers refer to the related notes. In 2012, interest on borrowings included a non-cash amount of EUR 21 million (2011: EUR 26 million) relating to previously capitalized debt issue costs and similar costs which are amortized over the remaining life of the respective bonds. With regards to the changes in the carrying value of Reggefiber call/put arrangements to acquire 100% of the shares over time, KPN has recorded EUR 100 million in line item ‘Other’ in Other financial results (2011: EUR 55 million). Refer to Note 12 and Note 29 for further information on the call/put arrangements. In 2012, a loss of EUR 16 million (2011: loss of 14 million) was recognized in the Consolidated Statement of Income (line item ‘Other’ in Other financial results) related to available-for-sale financial assets. The 2012 amount includes a EUR 13 million impairment loss on the investment in Compucom, in which KPN has an approximately 10% equity stake, as a result of a dividend payment of EUR 18 million by Compucom. This dividend is included in finance income in 2012 (see also Note 16). KPN | Annual Report 2012 105
Consolidated Financial Statements Notes to the Consolidated Statement of Income continued [7] Taxation For Dutch tax purposes, KPN Mobile and Koninklijke KPN are separate tax unities. The German activities (E-Plus) of KPN form a German partnership transparent for German tax purposes and a permanent establishment for Dutch tax purposes held by KPN Mobile. KPN Mobile tax unity An agreement in 2004 with the Dutch tax authorities allowed KPN Mobile to offset in 2002 a EUR 11.5 billion tax loss related to E-Plus against its Dutch taxable result. This loss had to be recaptured in later years by adding EBITDA of E-Plus to the taxable income of KPN Mobile. For the tax payments on this recapture a deferred tax liability has been recognized. This deferred tax liability is reduced by the taxes payable over EBITDA of E-Plus which were EUR 314 million in 2012 (2011: EUR 332 million). As per December 31, 2012, the deferred tax liability for the recapture amounted to EUR 205 million. Full recapture is expected to be realized during 2013. Koninklijke KPN tax unity In 2006, KPN signed a compliance covenant (‘Handhavingsconvenant’) with the Dutch tax authorities to self-assess and transparently discuss KPN’s current and potential future tax issues. A few issues were outstanding at December 31, 2012, of which the deductibility of the loss of EUR 119 million relating to the liquidation of a foreign entity and the timing of the deductibility of cost regarding the tender of outstanding bonds of approximately EUR 90 million are the most significant. KPN regards the liquidation loss as tax deductible, which has not been accepted by the tax authorities. KPN has recorded the cost of the tender at once whereas the tax authorities are of the opinion that the cost should be spread over the lifetime of the new bonds. In 2011, KPN reached an agreement with the Dutch tax authorities with regard to the application of the so called innovation tax facilities. Innovation tax facilities are facilities under Dutch corporate income tax law whereby profits attributable to innovation are taxed at an effective rate of 5%. The agreement has retroactive effect from 1 January 2007. The application of the innovation tax facilities resulted in a one-off benefit of EUR 118 million in 2011 mainly reflecting the period 2007 to 2010. KPN’s effective tax rate in The Netherlands was reduced from the statutory tax rate of 25% to approximately 20% as a result of the application of the innovation tax facilities. E-Plus In Germany, the income tax consists of trade tax (‘Gewerbesteuer’) and corporate tax (‘Körperschaftssteuer’). E-Plus has considerable loss carry forwards for both trade tax and corporate tax. For tax purposes, certain past impairments of goodwill and licenses were not recognized and therefore are amortized over the remaining useful lives (deductible temporary differences). In Germany, taxable income in a certain year, exceeding EUR 1 million, can only be offset for 60% against tax loss carry forwards. Trade tax and corporate tax is payable over the remaining 40% of taxable income. Information about the available tax loss carry forwards is given on page 109. At December 31, 2012, a deferred tax asset (DTA) of EUR 1,736 million (2011: EUR 1,710 million) was recognized of which EUR 1,020 million (2011: EUR 801 million) relates to estimated future tax savings due to available tax loss carry forwards and EUR 716 million (2011: EUR 909 million) for estimated future tax savings due to the realization of temporary differences. E-Plus determines the DTA by estimating future taxable income taking into account various uncertainties in future cashflows which are also used in impairment testing. Under German tax law, E-Plus recorded a reduction of tax losses carried forward amounting to 27,5% as a result of the change in control by America Movil, as shareholder in KPN, and thus exceeding the 25% threshold as defined in German tax law. The deferred tax asset related to these losses increased following an assessment of potential tax planning opportunities to accelerate the use of these losses. Other entities There are several other entities in the Netherlands which are separately liable for income taxes. In most other countries in which KPN operates, tax loss carry forwards are available and therefore no income tax is payable except when minimum taxation rules are applicable. 106 KPN | Annual Report 2012
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FINANCIAL STATEMENTS - KPN

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