38. INCOME TAXES

Income taxes for the year are broken down as follows:

(in thousands of euro)
  2011 2010
Current taxes 164,546 150,979
ferred taxes (130,089) (13,621)
  34,457 137,358

 

The change in deferred taxes stems principally from the recognition of deferred tax assets for residual tax losses carried forward from tax consolidation (euro 128,092 thousand) by Pirelli & C. S.p.A. following the amendment in tax law governing the use of such losses. On the one hand, this change limited use of them to 80% of taxable income each year, while on the other hand, it extended the period for the use of the losses indefinitely. This amount is classified as a non-recurring event.

The reconciliation between theoretical taxes and effective taxes is presented below:

(in thousands of euro)
  2011 2010
Income (loss) before income taxes 475,108 365,427
Reversal of net income (loss) of associates and joint ventures (2,903) (256)
A) Total Taxable Income 472,205 365,171
 
B) Theoretical taxes 169,248 124,080
Main causes for changes between theoretical and effective taxes:    
Income not subject to taxation (64,450) (39,278)
Non-deductible cost 49,093 42,735
Use of tax losses carried forward (11,622) (38,764)
Unrecognised deferred tax assets 16,670 7,556
Taxes not related to income and costs for tax assessments 31,519 53,801
Other (27,908) (12,772)
 
C) Effective taxes before recognition of deferred tax assets on losses carried forward in Italian tax consolidation programme 162,549 137,358
Deferred tax assets on losses carried forward (128,092) -
 
D) Effective taxes after recognition of deferred tax assets on losses carried forward in Italian tax consolidation programme 34,457 137,358
Theoretical tax rate (B/A) 36% 34%
Effective tax rate before recognition of deferred tax assets on losses carried forward by Pirelli & C. S.p.A. (C/A) 34% 38%
Effective tax rate after recognition of deferred tax assets on losses carried forward by Pirelli & C. S.p.A. (D/A) 7% 38%

 

The Group’s effective tax burden for 2011 before recognition of deferred tax assets on losses carried forward by PIRELLI & C. S.p.A. (euro 162,549 thousand) is attributable mainly to taxes payable by the Tyre Business ( Euro 181,166 thousand) for the positive taxable income of its subsidiaries.

The amount of taxes also includes accounting by PIRELLI & C. S.p.A. for the positive effects deriving from the option for domestic tax consolidation.

The amount shown for taxes also reflects the benefits resulting from use of tax losses carried forward and income not subject to taxation, as well as the costs for taxes not related to income, such as the regional business tax (IRAP) and WHT.

Considering the recognition of deferred tax assets on losses carried forward by PIRELLI & C. S.p.A., the effective tax rate was 7%.

The Group’s theoretical tax burden is calculated taking into account the nominal tax rates of the countries where the Group’s principal companies operate, as shown below:

  2011 2010
Europe  
Italy 31.40% 31.40%
Spain 30.00% 30.00%
Germany 29.37% 29.41%
Great Britain
26.50% 28.00%
Turkey 20.00% 20.00%
North America  
USA 40.00% 40.00%
South America  
Argentina 35.00% 35.00%
Brazil 34.00% 34.00%
Venezuela 34.00% 34.00%

 

The nominal tax rate in Great Britain fell from 28% in 2010 to 26.50% in 2011, consistently with local tax laws (Finance Act 2011).