Income Statement Disclosures
Income Statement Disclosures
Prior-year figures in the income statement disclosures refer to restated figures.
[ 1 ] SALES REVENUE
STRUCTURE OF GROUP SALES REVENUE
For segment reporting purposes, the sales revenue of the Group is presented by division and market.
[ 2 ] COST OF SALES
Cost of sales includes interest expenses of €2,147 million (previous year: €1,780 million) attributable to the financial services business.
[ 3 ] OTHER OPERATING INCOME
Foreign exchange gains mainly comprise gains from changes in exchange rates between the dates of recognition and payment of receivables and liabilities denominated in foreign currencies, as well as exchange rate gains resulting from measurement at the closing rate. Foreign exchange losses from these items are included in other operating expenses. Miscellaneous other operating income includes income from the sale of companies amounting to €320 million.
[ 4 ] OTHER OPERATING EXPENSES
[ 5 ] SHARE OF PROFITS AND LOSSES OF GROUP COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD
[ 6 ] FINANCE COSTS
[ 7 ] OTHER FINANCIAL RESULT
Gains and losses on hedged items and the related hedging derivatives within the meaning of IAS 39 are presented net in Gains and losses from the fair value remeasurement of ineffective hedging derivatives. These items also contain income and expenses from the ineffective portion of otherwise effective hedges, and from changes in the fair value of derivatives that do not qualify for hedge accounting under IAS 39. In addition, these items contain income and expenses from changes in the fair value of derivatives used for intragroup hedged items.
[ 8 ] INCOME TAX EXPENSE
COMPONENTS OF TAX INCOME AND EXPENSE
The statutory corporation tax rate in Germany for the 2006 assessment period was 25%. This resulted in an aggregate tax rate, including trade tax and the solidarity surcharge, of 38.3%. In fiscal year 2006, deferred taxes were generally measured at a tax rate of 38.3%. The local income tax rates applied for companies outside Germany vary between 0% and 42.0%. In the case of split tax rates, the tax rate applicable to undistributed profits is applied.
The realization of tax benefits from tax loss carryforwards from previous years resulted in a reduction in current income taxes in 2006 by €247 million (previous year: €151 million).
Previously unused tax loss carryforwards amounted to €3,104 million (previous year: €3,758 million). Tax loss carryforwards amounting to €1,598 million (previous year: €1,810 million) can be used indefinitely, while €277 million (previous year: €222 million) must be used within the next ten years. There are additional tax loss carryforwards amounting to €1,229 million (previous year: €1,725 million) that can be used within a period of 15 to 20 years. Tax loss carryforwards of €1,063 million (previous year: €607 million) are estimated not be usable.
The increase in tax loss carryforwards estimated not to be usable resulted primarily from the tax position of the US and Brazilian companies.
Deferred taxes are recognized where income from subsidiaries was tax-exempt in the past due to specific local regulations, but the tax effects on discontinuation of the temporary tax exemption are foreseeable. Tax benefits amounting to €141 million (previous year: €303 million) were recognized because of tax credits granted by various countries to compensate for the loss of tax relief where the amounts involved were unlimited.
No deferred tax assets were recognized for deductible temporary differences of €51 million in the previous year. No deferred tax assets were recognized for tax credits of €206 million (previous year: €206 million).
Deferred tax expenses resulting from changes in tax rates amounted to €22 million (previous year: deferred tax income of €10 million).
€596 million (previous year: €1,182 million) of the deferred taxes recognized in the balance sheet was taken directly to equity without being recognized in the income statement. Recognition of actuarial gains or losses directly in equity in accordance with IAS 19 resulted in a decrease in equity from the recognition of deferred taxes of €116 million in 2006 (previous year: increase of €469 million). Changes in deferred taxes on reserves for cash flow hedges decreased equity by €449 million (previous year: increase by €194 million). The deferred taxes required to be recognized on the fair value measurement of securities reduced equity by €15 million (previous year: €76 million).
CORPORATION TAX CREDIT
The Gesetz über steuerliche Begleitmaßnahmen zur Einführung der Europäischen Gesellschaft und zur Änderung weiterer steuerrechtlicher Vorschriften (SEStEG –Act on Fiscal Measures Accompanying the Introduction of the Societas Europaea and on Amending Further Tax Provisions) published in the Federal Law Gazette on December 12, 2006 revised the treatment of corporation tax credits. As the law previously stood, the annual realization of these tax credits was linked to dividend payments and thus to future events. The credits could thus only be recognized in the consolidated financial statements as a receivable at a proportionate annual amount (previous year: €75 million).
The SEStEG now stipulates that the corporation tax credit will be refunded irrespective of dividend payments. The recoverable amounts will thus be paid out in ten equal annual amounts between 2008 and 2017; the full amount of the refund became recoverable as of December 31, 2006 and does not bear interest.
The unconditional claim for refund not linked to any dividend payments was recognized as a current tax asset within the meaning of IAS 1.68 (m) and in the income statement. The present value of the recoverable corporation tax was €951 million at the balance sheet date.
DEFERRED TAXES CLASSIFIED BY BALANCE SHEET ITEM
The following recognized deferred tax assets and liabilities were attributable to recognition and measurement differences in the individual balance sheet items and to tax loss carryforwards:
In accordance with IAS 12, deferred tax assets and liabilities are offset if, and only if, they relate to income taxes levied by the same taxation authority and relate to the same tax period.
The tax income from continuing operations of €162 million reported for 2006 (previous year: expense of €571 million) was €848 million (previous year: €50 million) lower than the expected tax expense of €686 million that would have resulted from application of a tax rate applicable to undistributed profits of 38.3% to the profit before tax of the Group.
RECONCILATION OF EXPECTED TO EFFECTIVE INCOME TAX
[ 9 ] EARNINGS PER SHARE
Basic earnings per share are calculated by dividing profit attributable to shareholders of Volkswagen AG by the weighted average number of ordinary and preferred shares outstanding during the reporting period. Earnings per share are diluted by "potential shares". These include stock options, although these are only dilutive if they result in the issuance of shares at a value below the average market price of the shares. The fifth, sixth and seventh tranches of the stock option plan were dilutive.
