Toyota 2006 Annual Report Download - page 109

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Toyota is subject to a number of different income taxes
which, in the aggregate, indicate a statutory rate in Japan of
approximately 41.3%, 40.2% and 40.2% for the years ended
March 31, 2004, 2005, and 2006, respectively. Due to
changes in Japanese income tax regulations, effective April 1,
2004, the statutory rate was reduced to approximately 40.2%,
and such rate was also used to calculate the future expected
tax effects of temporary differences, which are expected to be
realized on and after April 1, 2006. Reconciliation of the dif-
ferences between the statutory tax rate and the effective
income tax rate is as follows:
For the years ended March 31,
2004 2005 2006
Statutory tax rate .......................................................................................................... 41.3% 40.2% 40.2%
Increase (reduction) in taxes resulting from:
Non-deductible expenses .......................................................................................... 0.5 0.3 0.4
Increase in deferred tax liabilities on undistributed earnings
of foreign subsidiaries and affiliates accounted for by the equity method................. 1.7 1.8 2.8
Valuation allowance.................................................................................................. (0.9) (0.1) (0.4)
Tax credits ................................................................................................................ (3.5) (3.4) (4.1)
Changes in tax rate resulting from enactment of income tax regulations.................... 0.6 — —
Other........................................................................................................................ (1.1) (1.3) (0.8)
Effective income tax rate ............................................................................................... 38.6% 37.5% 38.1%
Significant components of deferred tax assets and liabilities are as follows:
U.S.dollars
Yen in millions in millions
March 31, March 31,
2005 2006 2006
Deferred tax assets
Accrued pension and severance costs ........................................................................ ¥ 172,811 ¥183,824 $ 1,565
Warranty reserves and accrued expenses ................................................................... 160,565 208,654 1,776
Other accrued employees’ compensation .................................................................. 111,555 115,143 980
Operating loss carryforwards for tax purposes ........................................................... 50,566 44,293 377
Inventory adjustments............................................................................................... 53,093 50,407 429
Property, plant and equipment and other assets ........................................................ 131,467 162,872 1,386
Other........................................................................................................................ 294,828 308,317 2,625
Gross deferred tax assets....................................................................................... 974,885 1,073,510 9,138
Less—Valuation allowance ........................................................................................ (102,737) (93,629) (797)
Total deferred tax assets........................................................................................ 872,148 979,881 8,341
Deferred tax liabilities
Unrealized gains on securities.................................................................................... (255,028) (451,282) (3,842)
Undistributed earnings of foreign subsidiaries and affiliates
accounted for by the equity method........................................................................ (365,981) (502,232) (4,275)
Basis difference of acquired assets............................................................................. (33,313) (36,135) (308)
Lease transactions..................................................................................................... (321,055) (335,294) (2,854)
Gain on securities contribution to employee retirement benefit trust.......................... (66,523) (66,523) (566)
Other........................................................................................................................ (65,681) (61,321) (522)
Gross deferred tax liabilities................................................................................... (1,107,581) (1,452,787) (12,367)
Net deferred tax liability ........................................................................................ ¥ (235,433) ¥(472,906) $ (4,026)