2007 Annual Report - Sappi

US$ million 2007 2006
6. Taxation charge (benefit) continued
Reconciliation of the tax rate
Profit (loss) before taxation 249 (5)
Profit-making entities 424 268
Loss-making entities (175) (273)
Taxation at the average statutory tax rate 68 (13)
Profit-making entities at 28% (2006: 28%) 119 75
Loss-making entities at 29% (2006: 32%) (51) (88)
Non-taxable income (34) (24)
Effect of tax rate changes (19) (1)
Deferred taxation asset not recognised 49 54
Utilisation of previously unrecognised taxation assets (11) (24)
Secondary Tax on Companies (STC) 8 9
Prior year adjustments (15) (2)
Other taxes 1 –
Taxation charge (benefit) 47 (1)
Effective tax rate for the year 19% 15%
Sappi released a US$6 million provision in the fourth quarter of fiscal 2007 as a result of South African income tax legislation,
which was, in management’s opinion, substantively enacted at year end. If the legislation had not been substantively enacted
a further provision of US$11 million would have had to be raised in fiscal 2007.
Our effective tax rate reflects the benefits from reduced tax rates in Germany (2007: US$19 million; 2006: nil) and the
Netherlands (2007: US$2 million; 2006: US$1 million). The corporate tax rate in Germany was reduced from 38% in 2006
to 30% in 2007. The corporate tax rate in the Netherlands was reduced from 31.5% in 2005 to 29.6% in 2006 and 25.5%
in 2007. In addition a taxation charge of US$2 million has been recognised in 2007 as a result of the substantively enacted
STC rate adjustment from 12.5% to 10%.
On 08 November 2007, the directors declared a dividend (number 84) of 32 US cents per share (US$73 million) to be paid
to shareholders on 08 January 2008 (refer note 8). The estimated STC on this dividend at a rate of 10% is US$7 million which
will reduce our unutilised STC credits of US$10 million (refer note 12).
(1) The imposition of Secondary Tax on Companies (STC) effectively means that a dual corporate taxation system exists in South Africa comprising normal income
taxation and STC. Liability for STC is determined independently from normal income taxation and is paid by South African companies at the flat rate of 12.5%
(10% with effect from 01 October 2007) in respect of the amount of dividends declared less all dividends which accrued to them (but subject to certain
exclusions) during its relevant ‘dividend cycle’. ‘Dividend cycle’ means the period commencing on the day following the date of accrual to a company’s
shareholders of the last dividend declared by that company and ending on the date on which the dividend in question accrues to the shareholder concerned.
An excess of dividends accruing to a company over dividends paid may be carried forward to subsequent dividend cycles as an STC credit.
sappi limited | 07 | annual report 99