Philips 2005 Annual Report Download - page 114

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Philips Annual Report 2005114
reject the implemented procedures. Furthermore, buy in/
out situations in case of (de)mergers could affect the tax
allocation of GSAs between countries.
Tax risk due to disentanglements and acquisitions
When a subsidiary of Philips is disentangled, or a new
company is acquired, related tax risks arise. Philips
creates merger and acquisition (M&A) teams for these
disentanglements or acquisitions. These teams consist
of specialists from various corporate functions and are,
amongst other things, formed to indentify hidden tax risks
that could subsequently surface when companies are
acquired and to avoid tax claims related to disentangled
entities. These tax risks are investigated and assessed to
mitigate tax risks in the future as much as possible.
Several tax risks may surface from M&A activities.
Examples of risks are: applicability of the participation
exemption, allocation issues, and non-deductibility of
parts of purchase price.
Tax risks due to permanent establishments
In countries where Philips starts new operations the issue
of permanent establishments may arise. This is due to the
fact that when operations in new countries are led from
other countries, there is a risk that tax claims will arise in
the new country as well as in the initial country. Philips
assesses these risks before the new activities are started
in a particular country.
Tax risks of losses carried forward
The value of the losses carried forward is not only a matter
of having suffi cient profi ts available within the losses
carried forward period, but also a matter of suffi cient
profi ts within the foreseeable future in case of losses
carried forward with an indefi nite carryforward period.
Management discussion and analysis