Income taxes consist of the following:
|Taxes relating to prior periods||13||1|
|Total Income taxes||590||560|
Taxes relating to prior periods include the costs arising from certain disputes with tax authorities net of adjustments to tax contingency reserves.
The effective tax rate for 2013 was 39% (effective tax rate of 38% in 2012).
The reconciliation between the tax charges recorded in the Consolidated Financial Statements and the product of the Profit before taxes multiplied by the applicable tax rate is as follows:
|Statutory income taxes||350||404|
|Tax effect of permanent differences||6||(74)|
|Taxes relating to prior years||13||1|
|Difference between foreign tax rates and the statutory tax rate||205||66|
|Deferred taxes relating to prior years||(54)||(14)|
|Deferred tax assets not recognized||90||156|
|Use of tax losses for which no deferred tax assets were recognized||(29)||-|
|Current and deferred income tax recognized in the financial statements||590||560|
In the tax rate reconciliation the applicable tax rate is 23.25% for 2013 (average UK tax rate) and 27.50% for 2012 (Italian tax rate). Permanent differences in the above reconciliations include the tax effect of non-taxable income of €165 million in 2013 (€152 million in 2012) and of non-deductible costs of €171 million in 2013 (€78 million in 2012).
In 2013, deferred tax assets had an overall negative effect of €7 million on the reconciliation as the result of the nonrecognition of deferred tax assets on temporary differences and tax losses arising during the year of €90 million, partially offset by the recognition of previously unrecognized deferred tax assets of €83 million.
Other differences included local taxes.
Net deferred tax assets at December 31, 2013 consist of deferred tax assets, net of deferred tax liabilities, which have been offset where possible by the individual consolidated companies. The net balance of Deferred tax assets and Deferred tax liabilities may be analyzed as follows:
|(€ million)||At December 31, 2013||At December 31, 2012|
|Deferred tax assets||1.212||1.228|
|Deferred tax liabilities||(219)||(168)|
The decrease in net deferred tax assets, as analyzed in the following table, is mainly due to the following:
- for €31 million to the positive effect recognized in profit or loss of the utilization, net of valuation allowances, of deferred tax assets/liabilities recognized on temporary differences and tax losses arising during the year;
- for €33 million relating to the negative tax effect of items recognized directly in equity; and
- for €65 million to the negative effect of foreign exchange differences (€63 million) and other changes (€2 million).
Deferred tax assets, net of Deferred tax liabilities may be analyzed by source as follows:
|(€ million)||At December|
|Deferred tax assets arising from:|
|Taxed allowances for doubtful accounts||160||25||-||(19)||166|
|Provision for employee benefits||449||27||(4)||(65)||407|
|Write-downs of financial assets||12||56||-||1||69|
|Measurement of derivative financial instruments||17||(31)||-||(1)||(15)|
|Total Deferred tax assets||1,876||221||(2)||(88)||2,007|
|Deferred tax liabilities arising from:|
|Deferred tax on gains on disposal||-||-||-||-||-|
|Provision from employee benefits||(20)||7||-||1||(12)|
|Capitalisation of development costs||(305)||(53)||-||12||(346)|
|Total Deferred tax liabilities||(945)||(104)||(31)||41||(1,039)|
|Theoretical tax benefit arising from tax loss carryforwards||627||(51)||-||(55)||521|
|Adjustments for assets whose recoverability is not probable||(498)||(35)||-||37||(496)|
|Total Deferred tax assets, net of Deferred tax liabilities||1,060||31||(33)||(65)||993|
The decision to recognize Deferred tax assets is taken for each company in the Group by assessing critically whether the conditions exist for the future recoverability of such assets on the basis of updated strategic plans, accompanied by the related tax plans. For this reason, the total theoretical future tax benefits arising from deductible temporary differences (€2,007 million at December 31, 2013 and €1,876 million at December 31, 2012) and tax loss carryforwards (€521 million at December 31, 2013 and €627 million at December 31, 2012) have been reduced by €496 million at December 31, 2013 and by €498 million at December 31, 2012.
In particular, Deferred tax assets, net of Deferred tax liabilities, include €221 million at December 31, 2013 (€215 million at December 31, 2012) of tax benefits arising from tax loss carryforwards. At December 31, 2013, a further tax benefit of €300 million (€412 million at December 31, 2012) arising from tax loss carryforwards has not been recognized.
Deferred taxes have not been provided on the undistributed earnings of subsidiaries since the Group is able to control the timing of the distribution of these reserves and it is probable that they will not be distributed in the foreseeable future.
The totals of deductible and taxable temporary differences and accumulated tax losses at December 31, 2013, together with the amounts for which deferred tax assets have not been recognized, analyzed by year of expiry, are as follows:
|Year of expiry|
|(€ million)||Total at|
December 31, 2013
|Temporary differences and tax losses|
|Deductible temporary differences||7,659||2,932||1,114||1,024||823||1,724||42|
|Taxable temporary differences||(3,178)||(583)||(603)||(600)||(566)||(749)||(77)|
|Temporary differences and tax losses for which deferred tax assets have not been recognized||(2,781)||(361)||(34)||(149)||(248)||(618)||(1,371)|
|Temporary differences and tax losses||3,910||1,997||490||286||161||959||17|