Pharmaceuticals Sector - Solvay

70
Solvay Global Annual Report 2005
Reconciliation of the tax charge
The effective tax charge has been reconciled with the theoretical tax charge obtained by applying to the pre-tax
profi t of each Group entity the nominal tax rate prevailing in the country in which it operates.
EUR Million 2004 2005
Profi t before income taxes 600 493 (1)
Reconciliation of the tax charge
Total tax charge of the Group entities computed on the basis of the respective local
nominal rates
-204 -150
Weighted average nominal rate 34 % 30 %
Tax effect of non-deductible expenses -75 -112
Tax effect of tax-exempt revenues 127 98
Tax effect of changes in tax rates 4 0
Tax effect of current and deferred tax adjustments related to prior years -9 28
Valuation allowance on deferred tax assets 32 -17
Effective tax charge -125 -153
(1) Profi t before income taxes = Net income of the Group - net income from discontinued operations + income taxes.
Analysis of the past year’s tax charge
The Group’s effective tax rate is higher than the weighted average nominal rate, having been negatively infl uenced by
the provision for non tax-deductible charges. In 2004 the same fi gure was favorably infl uenced by the recognition of
EUR 63 million deferred tax asset in Germany.
Deferred taxes on the balance sheet
Deferred tax assets and liabilities are recorded in the balance sheet in respect of temporary differences arising from
the fact that the tax authorities apply different rules when assessing assets and liabilities than those used for drawing
up annual accounts. Variations occurring during the year in the deferred taxes recorded in the balance sheet are
taken into income, except where they relate to items that are recorded directly in shareholders’ equity (cf. above).
Deferred taxes are calculated based on the prevailing tax rates, or where they have been changed, at the enacted
rates that are expected to apply at the time of recording the taxes payable (or recoverable) in the statutory accounts.
Deferred tax assets are written down to the extent that it appears unlikely, in the light of expected future tax
situations, that they will in the future generate either a reduction in the tax base or tax credits.
Unless a dividend payment is planned, no deferred tax is calculated on the undistributed profi ts of subsidiaries as
these profi ts are, as a general rule, reinvested locally.