ANNUAL REPORT - KORADO, as

68
KORADO GROUP
Notes to the Consolidated Financial Statements for the Year Ended 31 December 2010 (In thousand CZK)
Income Tax Expense
A reconciliation of the theoretical amount of expected income tax that would arise using the tax rate in the Czech Republic to
the actual total income tax expense for the year ended 31 December 2010 and 2009 is as follows:
2010 2009
Profit before tax 35,266 76,779
Statutory income tax rate 19 % 20 %
“Expected” income tax expense 6,701 15,356
Add/(deduct) tax effect of:
Permanent differences 2,001 4,039
Change in tax rate - 1,655
Change in valuation allowance (2,155) 377
Change in deferred tax asset from tax credit (5,994) (19,537)
Consolidation adjustments 345 (656)
Other (204) 633
Actual income tax expense 694 1,867
Effective tax rate 2 % 2 %
Deferred income taxes at 31 December 2010 and 2009 consist of the following:
2010 2009
Receivables impairment provision 1,257 1,131
Inventory impairment provision 378 488
Provisions 2,102 2,233
Accumulated losses carried forward 24,452 40,420
Elimination of intra-group profit from inventories 69 322
Tax credit from investment incentive 29,759 23,765
Other 1,122 1,273
Total deferred tax assets 59,139 69,632
Less valuation allowance to deferred tax asset (10,669) (12,824)
Offset with deferred tax liabilities (47,333) (55,565)
Deferred tax assets in the balance sheet 1,137 1,243
Difference between net book value of non-current assets for accounting and tax purposes (118,464) (126,321)
Finance lease (84) (549)
Total deferred tax liabilities (118,548) (126,870)
Offset with deferred tax assets 47,333 55,565
Deferred tax liabilities in the balance sheet (71,215) (71,305)
Out of the total tax losses of subsidiaries generated since
1999, CZK 43,980 thousand and CZK 54,567 thousand can
be carried forward as of 31 December 2010 and 2009, respectively.
In 2010 and 2009, valuation allowance was established
in full against deferred tax asset arising from tax losses
of subsidiaries as it is not probable the losses will be utilized.
The tax losses from the Parent Company were reflected in
deferred tax asset in full; the Company expects their utilization
in future periods. The deferred tax liability of the Parent
Company represents in particular the difference between net
book value of non-current assets for accounting and tax purposes.
In 2008, the Parent Company launched the 4th production
line which entitled the Company to use the investment incentives.
The amount of potential investment incentive related to
capital expenditures already incurred is CZK 170 million as at
31 December 2010 and 31 December 2009. The Company
plans to meet all relevant criteria for drawing these funds and
use the investment incentive in the future. The Company recognized
a deferred tax asset from the investment incentive
of CZK 29,759 thousand and CZK 23,765 thousand as at 31
December 2010 and 2009, respectively, based on the review
of probability of the amount to be utilized within the short to
mid-term period (3 - 5 years).
21. Related Party Transactions
As at 31 December 2010 and 2009, members of the Board
of Directors and Supervisory Board and directors owned 660
and 660 shares of the Parent Company, respectively.
In 2010 and 2009 management personnel of Group companies
(23 and 23 people in total, respectively) received salaries
Annual Report 2010