7.5 Taxes

Domestic taxes on income, comparable taxes on income at foreign subsidiaries as well as deferred taxes in accordance with IAS 12 (“Income Taxes”) and deferred tax assets and liabilities are recognised under this item.

The reader is referred to Section 3.2 “Summary of major accounting policies” regarding the basic approach to the recognition and measurement of deferred taxes.

The tax rate used to calculate the deferred taxes of the domestic companies was unchanged from the previous year at 31.93% (rounded to 32%). It is arrived at from the corporate income tax rate of 15.0% applicable on 1 January 2008, the German reunification charge of 5.5% and a uniform trade earnings tax rate of 16.1%. The deferred taxes at the companies abroad were calculated using the applicable country-specific tax rates.

Tax-relevant bookings on the Group level are generally made using the Group tax rate of 32% unless they refer specifically to individual companies.

Deferred tax liabilities on profit distributions of significant affiliated companies are established in the year when they are received.

Tax risks

Contrary to a very clear opinion expressed by tax attorneys, the revenue authority is of the view that not inconsiderable investment income generated by the Group’s reinsurance subsidiaries domiciled in Ireland is subject to additional taxation at the parent companies in Germany on the basis of the provisions of the Foreign Transactions Tax Act. Insofar as tax assessments to this effect have already been received, appeals have been filed – also with respect to the amounts already recognised as a tax expense. Now that our opinion has been confirmed in full by the court of the first instance, we continue to regard as slight the risk that tax assessments containing additional taxation of investment income generated by Irish companies will be upheld.

The breakdown of actual and deferred income taxes was as follows:

The following table presents a breakdown of the deferred tax assets and liabilities into the balance sheet items from which they are derived.

The deferred tax assets and deferred tax liabilities are shown unoffset in the above table. The deferred taxes are recognised as follows in the balance sheet after appropriate netting.

The actual and deferred taxes recognised directly in shareholders’ equity in the financial year amounted to –EUR 23.3 million (–EUR 53.5 million). They resulted from items that were charged or credited directly to equity.

The establishment of deferred tax liabilities in connection with the capitalised PVFP at the time of acquisition of the ING life reinsurance portfolio in an amount of EUR 13.0 million correspondingly reduced the negative goodwill.

The following table presents a reconciliation of the expected expense for income taxes with the actual expense for income taxes reported in the statement of income. The pre-tax result is multiplied by the Group tax rate in order to calculate the Group’s expected expense for income taxes.

Availability of capitalised loss carry-forwards

Unused tax loss carry-forwards of EUR 370.8 million (EUR 292.0 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 345.0 million (EUR 249.6 million) thereof was not capitalised since realisation is not sufficiently certain.

There were also temporary differences of EUR 103.5 million (EUR 114.2 million) and available tax credits of EUR 22.3 million (EUR 20.3 million), which were not capitalised.

Availability of loss carry-forwards and tax credits that have not been capitalised: