The Benetton Group Annual Report 1996

Expense
This caption includes:
1995 1996
Losses on disposals 3,673 2,030
Taxes relating to prior years 508 61
Other expense:
- Donations 3,892 4,768
- Out-of-period expense 4,930 11,455
- Other extraordinary expense 34,136 37,415
Total 47,139 55,729
Out-of-period expense includes credit notes issued to customers for rebates and the return of goods
supplied in prior years, as well as charges incurred by Benetton Formula Ltd. in relation to T.W.R. Group
Ltd..
Other extraordinary expense includes compensation payments made to customers against accident
and theft claims, charges in relation to settlements of various types, and provisions to the reserve for
contingencies which may arise from current legal disputes.
Income taxes
The provision for income taxes includes the following amounts (in millions of Lire):
Current:
1994 1995 1996
Italian companies 137,132 189,365 171,676
Foreign companies 14,379 15,427 17,817
Deferred:
Italian companies (3,658) (10,953) 18,051
Foreign companies 2,701 (5,180) (906)
Total 150,554 188,659 206,638
The effective tax rate on income before taxes and minority interests is 45.2% (45.9% in 1995 and 42.1% in
1994).
This is less than the ordinary Italian tax rate, primarily due to the effect of the lower rates applicable to
the earnings of certain foreign subsidiaries, the use of tax loss carry-forwards and the receipt of taxexempt
income.
The reconciliation of the effective tax rate is as follows:
1994 1995 1996
Italian statutory tax rate 53.2% 53.2% 53.2%
Aggregate effect of different taxation of
foreign subsidiaries (15.8%) (10.0%) (12.3%)
Effect of writing down of the cost of
consolidated investments (5.7%) (8.8%) (5.9%)
Effect of losses from consolidated subsidiaries 14.0% 15.1% 9.5%
Tax exempt income (0.8%) (1.2%) (2.3%)
Tax effect of loss carry-forwards (4.4%) (0.3%) (0.5%)
Other, net 1.6% (2.1%) 3.5%
Effective tax rate 42.1% 45.9% 45.2%
See note 20 for composition of deferred tax assets and liabilities.