Philips 2014 Annual Report Download - page 138

Group nancial statements 12.9
138 Annual Report 2014
Classication of the income tax payable and receivable
is as follows:
Philips Group
Income tax payable and receivable in millions of EUR
2013 - 2014
2013 2014
Income tax receivable 70 140
Income tax receivable - under non-current
receivables – –
Income tax payable (143) (102)
Income tax payable - under non-current
liabilities (1) (1)
Tax risks
Philips is exposed to tax uncertainties. These
uncertainties include amongst others the following:
Transfer pricing uncertainties
Philips has issued transfer pricing directives, which are
in accordance with international guidelines such as
those of the Organization of Economic Co-operation
and Development. As transfer pricing has a cross-
border eect, the focus of local tax authorities on
implemented transfer pricing procedures in a country
may have an impact on results in another country. In
order to reduce the transfer pricing uncertainties,
monitoring procedures are carried out by Group Tax
and Internal Audit to safeguard the correct
implementation of the transfer pricing directives.
Tax uncertainties on general and specic
service agreements and licensing agreements
Due to the centralization of certain activities in a limited
number of countries (such as research and
development, centralized IT, group functions and head
oce), costs are also centralized. As a consequence,
these costs and/or revenues must be allocated to the
beneciaries, i.e. the various Philips entities. For that
purpose, specic allocation contracts for costs and
revenues, general service agreements and licensing
agreements are signed with a large number of group
entities. Tax authorities review the implementation of
these intra-group service and licensing agreements or
audit the use of tax credits attached to the resulting
service fee and royalty payments, and may reject the
implemented procedures. Furthermore, buy in/out
situations in the case of (de)mergers could aect the
cost allocation resulting from the service agreements
between countries. The same applies to the specic
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 group 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 of the extent 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 Philips starts new operations or
alters business models, the issue of permanent
establishment may arise. This is because when
operations in a country involves a Philips organization
in another country, there is a risk that tax claims will
arise in the former country as well as in the latter
country.