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The following table reconciles the expected income tax expense to actual income tax expense.
The expected income tax expense is computed by multiplying the pre-tax earnings by the overall
tax rate applicable for the respective business year:
‘000 euros 2004 2003
Group earnings before taxes 31,622 17,882
Expected tax expense at a tax rate of 37.5% (2003: 38.8%)
Increase/decrease in tax expense due to:
11,858 6,938
Tax-rate differential with non-German countries –7,078 –2,987
Changes in tax rates 0 –11
Non-deductible operating expenses 5,282 352
Tax-free income –1,318 128
Prior year taxes 7,053 –3,123
Non-deductible foreign source taxes 0 1,113
Additions to valuation adjustment on deferred taxes
Special impact from definition of continuing and
10,625 30,676
discontinued operations –7,188 –23,756
Tax effects at the consolidation level –9,131 0
Other –504 –75
Actual tax expense 9,599 9,255
As of December 31, 2004, the Group has loss carryforwards for German corporate income tax
of 302,262 thousand euros (2003: 276,393 thousand euros), for German trade tax of 237,179
thousand euros (2003: 204,257 thousand euros) and for foreign taxes of 3,894 thousand euros
(2003: 6,261 thousand euros). Under German tax law as applicable as of the balance sheet
date, domestic losses can be carried forward without limit as to time or the amount. Of the foreign
loss carryforwards, 1,171 thousand euros may be used until 2008.
Valuation adjustments of 92,136 thousand euros (2003: 83,242 thousand euros) have been
recorded against deferred tax assets, mainly for tax loss carryforwards, if realization within a
foreseeable period of time is uncertain because of the circumstances or the legal situation and
the available information. The current assessment with regard to the recoverability of deferred
tax assets can change, depending on the earnings situation in future years, and necessitate higher
or lower valuation adjustments. Changes in German tax legislation with regard to the utilization
of loss carryforwards (minimum taxation) have been taken into account in the assessment of the
recoverability of deferred tax assets on loss carryforwards.
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FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP