Philips 2004 Annual Report Download - page 122
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The components of income before taxes are as follows:
2002 2003 2004
Netherlands (1,434) 97 1,001
Foreign (373) 147 822
Income (loss) before taxes (1,807) 244 1,823
The components of income tax expense are as follows:
Netherlands:
Current taxes 14 10 (46)
Deferred taxes 48 (238) (150)
62 (228) (196)
Foreign:
Current taxes (244) (248) (254)
Deferred taxes 155 491 92
(89) 243 (162)
Income tax (expense) benefit (27) 15 (358)
Philips’ operations are subject to income taxes in various foreign jurisdictions with statutory
income tax rates varying from 12.5% to 42%, which causes a difference between the weighted
average statutory income tax rate and the Netherlands’ statutory income tax rate of 34.5%.
A reconciliation of the weighted average statutory income tax rate as a percentage of income
before taxes and the effective income tax rate is as follows:
2002 2003 2004
Weighted average statutory income tax rate 34.1 35.3 33.8
Tax effect of:
Changes in the valuation allowance:
- utilization of previously reserved loss carryforwards 3.1 (54.4) (1.0)
- new loss carryforwards not expected to be realized (8.0) 37.7 2.5
- releases and other changes (3.2) (40.6) (3.5)
Non-tax-deductible impairment charges (37.3) 19.6 11.2
Non-taxable income 14.1 (40.5) (25.2)
Non-tax-deductible expenses (2.8) 43.6 2.1
Withholding and other taxes (1.2) 3.4 0.9
Tax incentives and other (0.3) (10.3) (1.2)
Effective tax rate (1.5) (6.2) 19.6
The tax effects of transactions recorded as other comprehensive income within stockholders’
equity are recognized on a net-of-tax basis. The amounts recorded in 2004 include a tax benefit
of EUR 62 million (2003: EUR 27 million) related to the minimum pension liability. Additionally,
a tax benefit relating to the deferred results on hedge transactions of EUR 0.2 million was
recorded (2003: charge of EUR 10 million, 2002: charge of EUR 9 million).
Other items affecting other comprehensive income do not have tax consequences. In the
reconciliation of the weighted average statutory income tax rate as a percentage of total income
before taxes and the effective tax rate, non-taxable gains on the IPO of NAVTEQ and the sale
of shares in Vivendi Universal and ASML are included in the line non-taxable income; the
non-tax-deductible impairment charge relating to MedQuist is included in the line
non-tax-deductible impairment charges.
121Philips Annual Report 2004