Philips 2011 Annual Report Download - page 142

4 5 12 Group financial statements 12.11 - 12.11
142 Annual Report 2011
beneficiaries, i.e. the various Philips entities. For that purpose, apart
from specific allocation contracts for costs and revenues, general
service agreements (GSAs) are signed with a large number of entities.
Tax authorities review the implementation of GSAs, apply benefit tests
for particular countries or audit the use of tax credits attached to GSAs
and royalty payments, and may reject the implemented procedures.
Furthermore, buy in/out situations in the case of (de)mergers could
affect the tax allocation of GSAs between countries. The same applies
to the specific allocation contracts.
Tax uncertainties due to disentanglements and acquisitions
When a subsidiary of Philips is disentangled, or a new company is
acquired, related tax uncertainties arise. Philips creates merger and
acquisition (M&A) teams for these disentanglements or acquisitions. In
addition to representatives from the involved sector, these teams
consist of specialists from various corporate functions and are formed,
amongst other things, to identify hidden tax uncertainties that could
subsequently surface when companies are acquired and to reduce tax
claims related to disentangled entities. These tax uncertainties are
investigated and assessed to mitigate tax uncertainties in the future as
much as possible. Several tax uncertainties may surface from M&A
activities. Examples of uncertainties are: applicability of the participation
exemption, allocation issues, and non-deductibility of parts of the
purchase price.
Tax uncertainties due to permanent establishments
In countries where e.g. Philips starts new operations or alters business
models, the issue of permanent establishment may arise. This is because
when operations in a country are led from another country, there is a
risk that tax claims will arise in the former country as well as in the
latter country.
4Investments in associates
Results relating to investments in associates
2009 2010 2011
Company’s participation in income 23 14 18
Results on sales of shares − 5 −
Gains from dilution effects − − 1
Investment impairment / other charges 54 (1) (3)
77 18 16
Company’s participation in income relates mainly to shares in Intertrust
Technologies (EUR 14 million in 2011, EUR 10 million in 2010 and EUR
14 million in 2009).
In 2009, the gain of EUR 54 million includes a reversal of an impairment
charge related to TPV Technology Ltd. of EUR 55 million, which was
recognized as an impairment charge in 2008 due to the weak stock price
performance of TPV during that year. In 2010, Philips sold 9.4% of the
shares in TPV. Philips retained 3.0% of the TPV shares. The transaction
resulted in a gain of EUR 5 million, which was recognized under Results
on sales of shares.
Investments in associates
The changes during 2011 are as follows:
Investments in associates
loans investments total
Balance as of January 1, 2011 3 178 181
Changes:
Acquisitions/Additions − 38 38
Sales/Redemption (1) − (1)
Reclassifications − 3 3
Share in income − 19 19
Impairments − 2 2
Dividends received − (44) (44)
Translation and exchange rate
differences − 5 5
Balance as of December 31,
2011 2 201 203
Summarized information of investments in associates
Unaudited summarized financial information on the Company’s most
significant investments in associates, on a combined basis, is presented
below. It is based on the most recent available financial information.
The decline of values is mainly related to the sale of TPV shares in March
2010.
2009 2010 2011
Net sales 4,165 353 408
Income before taxes 142 47 86
Income taxes (30) (16) (27)
Other income (loss) (6) − −
Net income 106 31 59
Total share in net income of associates
recognized in the Consolidated
statements of income 23 14 18
2010 2011
Current assets 760 669
Non-current assets 282 227
1,042 896
Current liabilities (631) (475)
Non-current liabilities (99) (58)
Net asset value 312 363
Investments in associates included in the
Consolidated balance sheet 178 201
5Discontinued operations and other assets
classified as held for sale
Discontinued operations: Television business
In conjunction with the announcement made on April 18th of the
Television long-term strategic partnership with TPV Technology
Limited the Television business is presented as a discontinued
operation. Therefore in accordance with IFRS 5, the results directly
related to the Television business and to be discontinued from a Philips
perspective, are reported under discontinued operations in the
Consolidated statements of income and cash flow reported in the