(11) Income taxes
The Group‘s income tax breaks down as follows:
The reduction in the effective tax expense in Germany is primarily due to the decrease in the overall income tax rate for 2008 to 30.0 per cent (prior year: 38.7 per cent). In Germany, the deferred tax expense was much lower than in 2007 because the consequences of the reduction in the tax rate for deferred tax items had to be recognized as early as the end of 2007.
The domestic corporate income tax rate for fiscal 2008 was 15.0 per cent (prior year: 25.0 per cent) plus the solidarity surcharge of 5.5 per cent (prior year: 5.5 per cent) of the corporate income tax burden. Including the trade tax, which stopped affecting the corporate tax payment when the German corporate tax reform was adopted in 2008, the total tax rate was about 30.0 per cent (prior year: 38.7 per cent).
The applied local income tax rates for foreign companies varied between 12.5 per cent (prior year: 12.5 per cent) and 35.0 per cent (prior year: 40.0 per cent).
As of December 31, 2008, the Group had about €118 million in corporate tax loss carryforwards (prior year: €146 million) and about €7 million in trade tax loss carryforwards (prior year: €7 million) on its books. The loss carryforwards can largely be carried forward without limitations. The reduction is primarily due to the usage of losses in Germany, the UK and France. €22.1 million (prior year: €23.8 million) in valuation allowances were recognized for deferred tax assets for these loss carryforwards.
When stating deferred tax assets on the balance sheet, one must assess the extent to which future effective tax relief might result from existing tax loss carryforwards and the differences in accounting and valuation. In this context, all positive and negative influential factors have been taken into account. Compared to the preceding year, our assessment has changed, leading to an additional deferred tax expense of about €4.6 million (prior year: income of 3.0 million). Our present assessment of this point may alter depending on changes in our earnings position in future years and may necessitate a higher or lower valuation allowance.
Deferred tax assets and liabilities result from the accounting and valuation differences in the following balance sheet items:
After being offset against each other, deferred tax assets and deferred tax liabilities were as follows:
The following table shows the reconciliation from the expected tax expenses to the disclosed tax expenses. The expected tax expenses reported are the sum resulting from applying the overall tax rate of 30.0 per cent (prior year: 38.7 per cent) applicable to the parent company to consolidated earnings before income taxes.
In 2008, the Group‘s tax quota was 36.8 per cent (prior year: 41.1 per cent).