Annual Report - EDP

notes to the EDP consolidated - Energias de Portugal, and company S.A. financial statementsNotes for to the the Consolidated years ended and Company 31 december Financial Statements 2012 and 2011for the years ended 31 December 2012 and 2011Income from equity investments is analysed as follows:GroupCompanyThousands of Euros Dec 2012 Dec 2011 Dec 2012 Dec 2011Group companies - - 640,299 633,97916. INCOME TAXOther companiesAmpla Investimentos e Serviços, S.A. - 1,656 - 1,656Tejo Energia, S.A. 1,667 2,222 - -REN - Rede Eléctrica Nacional, S.A. 3,159 2,465 3,159 2,465Other 1,002 1,542 - 3985,828 7,885 643,458 638,498In accordance with current legislation, tax returns are subject to review and correction by the tax authorities during subsequent periods. In Portugal the limit is 4 yearsregarding tax years in which tax losses have been assessed or 5 or 6 years if tax losses and tax benefits have been used. In Spain the period is 4 years and in Brazil itis 5 years, being the last year considered settled by the tax administration the year of 2008. In the United States of America the general Statute of Limitations for the IRSto issue additional income tax assessments for an entity is 3 years from the date that the income tax return is filed by the taxpayer.Tax losses generated in each year, which are also subject to inspection and adjustment, can be deducted from taxable income during subsequent periods (5 years inPortugal since 2012, 18 years in Spain, 20 years in the United States, without an expiry date in Belgium and France and without an expiry date in Brazil, although inBrazil it is limited to 30% of the taxable income of each period). The EDP Group companies are taxed, whenever possible, on a consolidated basis as allowed by thetax legislation of the respective countries.In August 2011, the Royal Decree-Law 9/2011 was approved, introducing a set of amendments to the Spanish income tax legislation. From 1 January 2012 onwards,the period for off setting prior years' tax losses carry forward is extended from 15 to 18 years.The Law 64-B/2011 of December 30, (2012 State Budget Law) has extended the period to carry forward tax losses from 4 to 5 years (for tax losses generated after 1January 2012). However, the deduction of tax losses (even if generated before 2012) cannot exceed to 75% of the taxable income earned in each tax period. Thislimitation does not prevent the deduction of the non-deducted losses, in the same conditions, until the end of the respective taxable deductible period.Royal Decree-Law 12/2012, published on March 31, 2012, provides for the implementation of a set of measures aimed to reduce the public deficit, namely a generallimitation for the deduction of the net financial expenses to 30% of the adjusted operational profit. The amount of financial expenses incurred with interest whichexceed the above mentioned 30% may be deducted in the 18 following years, provided that this limit is not exceeded each year. Additionally, the maximum annualrate of goodwill amortisation is established at 1% for the tax years of 2012 and 2013.In previous years, as a result of the Portuguese Tax Authorities interpretations regarding municipal surcharge and the underlying IT systems used by the taxauthorities, EDP paid in excess municipal surcharge on the individual taxable income of the subsidiaries forming EDP taxation group in the amount of 43.1 millions ofEuros.On 30 December 2011, the Administrative Court of Lisbon issued a favourable decision to EDP Group regarding the municipal surcharge of 2007, which resulted in therecognition of an income of 10 million of Euros in 2011. On 24 April 2012, an additional favourable decision was issued regarding the municipal surcharge of 2010 onthe amount of 12.7 million of Euros, which was recorded as an income in the second quarter of 2012. On 31 December 2012, the Administrative Court of Lisbon formallyreleased a decision in favour of EDP regarding the 2008 municipal surcharge and autonomous taxation, which resulted in the recognition of an income of 7.5 millionof Euros in 2012.Following these decisions, as at 31 December 2012, the total amount of 2009 and 2011 Municipal surcharge paid in excess, regarding which EDP is still awaiting for aformal decision on the administrative and legal procedures, amounts to 12.9 million of Euros.The Royal Decree-Law 20/2012, wich was approved in July 2012, introduces a new set of temporary measures regarding the Spanish Corporate Income Taxlegislation. The main measures are related to the change of the method for the calculation of the payments on account due by large-sized companies in the years2012 and 2013 and to the amendment of the limits to the deductibility of tax losses carry forward for the years 2012 and 2013:- Companies whose last year income are between 20 and 60 million of Euros, can only deduct tax losses until the limit of 50% of the taxable income contrary to theformer foreseen limit of 75%; and- Companies whose last year income exceed 60 million of Euros, can only deduct tax losses until the limit of 25% of the taxable income when compared to the formerforeseen limit of 50%.Income tax expense is analysed as follows:GroupCompanyThousands of Euros Dec 2012 Dec 2011 Dec 2012 Dec 2011Current tax -154,025 -187,484 -15,204 69,213Deferred tax -128,512 -72,894 106,560 104,393-282,537 -260,378 91,356 173,606EDP - Annual Report 2012201