10 Income tax
The income tax expense on the total result was €136 million (2006: €180 million) and can be broken down as follows:
 
2007
2006
Current tax expense:
 
 
- Current year
(65)
(76)
- Prior-year adjustments
(17)
(12)
 
 
 
 
(82)
(88)
Deferred tax expense:
 
 
- Originating from a reversal
of temporary differences
(83)
(99)
- Prior-year adjustments
(7)
(25)
- Change in tax rate
(10)
1
- Benefit of tax losses and tax
credits recognized
46
31
 
 
 
 
(54)
(92)
 
 
 
Total
(136)
(180)
 
 
 
Of which related to:
 
 
- The result from discontinuing operations
-
1
- The result from exceptional items
47
18
- The result from continuing operations
(183)
(199)
The effective income tax rate on the result from continuing operations was 24.5% in 2007 (2006: 26.4%). The relationship between the income tax rate in the Netherlands and the effective tax rate on the result from continuing operations is as follows:
As a %
2007
2006
Domestic income tax rate
25.5
29.6
 
 
 
Tax effects of:
 
 
- Deviating rates
2.4
(4.7)
- Tax-exempt income and
non-deductible expense
0.3
0.5
- Other effects
(3.7)
1.0
 
 
 
Effective tax rate
24.5
26.4
The balance of deferred tax assets and deferred tax liabilities decreased by €111 million owing to the changes presented in the table below:
 
2007
2006
Balance at 1 January
 
 
Deferred tax assets
496
533
Deferred tax liabilities
(383)
(219)
 
 
 
Total
113
314
 
 
 
Changes:
 
 
- Income tax expense in income statement
(54)
(92)
- Income tax expense in equity
(52)
(110)
- Acquisitions and disposals
(9)
(6)
- Exchange differences
(16)
(25)
- Reclassifications
20
32
 
 
 
Balance at 31 December
2
113
 
 
 
Of which:
 
 
- Deferred tax assets
346
496
- Deferred tax liabilities
(344)
(383)
The group companies that DSM has in various countries conduct a large variety of transactions among themselves. In various countries DSM has taken standpoints regarding its tax position which may at any time be challenged, or have already been challenged, by the tax authorities because the authorities in question interpret the law differently. In determining the probability of realization of deferred tax assets and liabilities these uncertainties are taken into account.
The deferred tax assets and liabilities relate to the following balance sheet items:
 
2007
2006
Deferred tax
assets
Deferred
tax liabilities
Deferred
tax assets
Deferred
tax liabilities
Intangible assets
71
(49)
27
(42)
Property, plant and equipment
71
(261)
60
(285)
Financial assets
23
(313)
10
(213)
Inventories
34
(31)
41
(29)
Receivables
4
(8)
39
(10)
Equity
-
(4)
-
(5)
Other non-current liabilities
8
(2)
11
(2)
Non-current provisions
73
(13)
83
(11)
Non-current borrowings
1
(22)
2
(14)
Other current liabilities
55
(3)
36
(4)
 
 
 
 
 
 
340
(706)
309
(615)
Tax losses carried forward
368
-
419
-
Set-off
(362)
362
(232)
232
 
 
 
 
 
Total
346
(344)
496
(383)
No deferred tax assets were recognized for losses carried forward amounting to €48 million (2006: €70 million).
DSM has to assess the likelihood that deferred tax assets will be recovered from future taxable income. Deferred tax assets are reduced if, and to the extent that, it is not probable that all or some portion of the deferred tax assets will be realized. In the event that actual results differ from estimates in future periods, and depending on tax strategies that DSM may be able to implement, changes to the measurement of deferred taxes could be required, which could impact on the company’s financial position and net profit.