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Financial Statements

Notes 1-5

4 TAXATION

Taxation recognised in the income statement is as follows:

2007
$m		 2006
$m		 2005
$m
Current tax expense
Current year 1,890 2,431 1,747
Adjustment for prior years 261 270 112
2,151 2,701 1,859
Deferred tax expense
Origination and reversal of temporary differences 379 (81) 165
Adjustment to prior years (174) (140) (81)
Total taxation expense in the income statement 2,356 2,480 1,943

Taxation has been provided at current rates on the profits earned for the periods covered by the Group Financial Statements. The 2007, 2006 and 2005 prior period current tax adjustments relate mainly to provision to return adjustments, an increase in provisions in respect of a number of transfer pricing audits and double tax relief. The 2007, 2006 and 2005 prior year deferred tax credits relate to provision to return adjustments and the recognition of previously unrecognised deferred tax assets. To the extent that dividends remitted from overseas subsidiaries, joint ventures and associates are expected to result in additional taxes, appropriate amounts have been provided for. No deferred tax has been provided for unremitted earnings of Group companies overseas as these are considered permanently employed in the businesses of these companies. Unremitted earnings may be liable to overseas taxes and/or UK taxation (after allowing for double taxation relief) if they were to be distributed as dividends. The aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures for which deferred tax liabilities have not been recognised totalled approximately $12,639m at 31 December 2007 (2006 $13,291m, 2005 $13,649m).

Consolidated statement of recognised income and expense

The current tax credit on consolidation exchange adjustments taken to reserves amounted to $32m in 2007 (2006 credit of $62m, 2005 charge of $46m). The current tax credit on share-based payments amounted to $1m (2006 $36m, 2005 $nil). The deferred tax credit taken to reserves amounted to $nil in 2007 (2006 $39m, 2005 $21m).

Factors affecting future tax charges

As a group involved in worldwide operations, AstraZeneca is subject to several factors that may affect future tax charges, principally the levels and mix of profitability in different jurisdictions, transfer pricing regulations and tax rates imposed. A number of material items currently under audit and negotiation are set out in detail in Note 27.

Tax reconciliation to UK statutory rate

The table shown below reconciles the UK statutory tax charge to the Group’s total tax charge.

2007
$m		 2006
$m		 2005
$m
Profit before tax 7,983 8,543 6,667
Notional taxation charge at UK corporation tax rate of 30% (30% for 2006, 30% for 2005) 2,395 2,563 2,000
Differences in effective overseas tax rates (105) (156) (128)
Deferred tax income relating to reduction in UK and other tax rates1 (57) – –
Unrecognised deferred tax asset (1) (6) 25
Items not deductible for tax purposes 70 58 117
Items not chargeable for tax purposes (33) (109) (102)
Adjustments in respect of prior periods 87 130 31
Total tax charge for the year 2,356 2,480 1,943

1The majority of this item relates to the reduction in the UK statutory corporation tax rate from 30% to 28% effective from 1 April 2008.

Deferred tax

Deferred tax assets and liabilities and the movements during the year, before offset of balances within countries, are as follows:

Property,
plant and
equipment
$m		 Intangible
assets
$m		 Pension
and post-
retirement
benefits
$m		 Inter
company
inventory
transfers
$m		 Untaxed
reserves1
$m		 Accrued expenses $m Share
schemes
$m		 Deferred
capital
gains
$m		 Losses
and tax
credits
carried
forward
$m		 Other
$m		 Total
$m
Deferred tax assets at 1 January 2006 119 – 461 821 – 200 82 – – 12 1,695
Deferred tax liabilities at 1 January 2006 (842) (200) – – (492) – – (94) – (62) (1,690)
Net deferred tax balance at 1 January 2006 (723) (200) 461 821 (492) 200 82 (94) – (50) 5
At 1 January 2006 (723) (200) 461 821 (492) 200 82 (94) – (50) 5
Income statement 63 175 54 18 (315) 112 26 8 57 23 221
Statement of recognised income and expense – – 35 – – – 4 – – – 39
Acquisition of subsidiary undertaking2 – (454) – – – – – – – – (454)
Exchange (133) (10) 54 14 (74) 11 1 (13) – – (150)
Net deferred tax balance at 31 December 2006 (793) (489) 604 853 (881) 323 113 (99) 57 (27) (339)
Deferred tax assets at 31 December 2006 37 2 604 853 – 323 113 – 57 28 2,017
Deferred tax liabilities at 31 December 2006 (830) (491) – – (881) – – (99) – (55) (2,356)
Net deferred tax balance at 31 December 2006 (793) (489) 604 853 (881) 323 113 (99) 57 (27) (339)

1Untaxed reserves relate to taxable profits where the tax liability is deferred to later periods.

2The deferred tax liability of $454m relates to the acquisitions of KuDOS Pharmaceuticals Limited and Cambridge Antibody Technology Group plc (Note 24). During the course of 2006 the Humira™royalty stream was sold resulting in a release of the deferred tax liability of $198m recognised on acquisition.

Property,
plant and
equipment
$m		 Intangible
assets
$m		 Pension
and post-
retirement
benefits
$m		 Inter
company
inventory
transfers
$m		 Untaxed
reserves1
$m		 Accrued expenses $m Share
schemes
$m		 Deferred
capital
gains
$m		 Losses
and tax
credits
carried
forward
$m		 Other
$m		 Total
$m
Deferred tax assets at 1 January 2007 37 2 604 853 – 323 113 – 57 28 2,017
Deferred tax liabilities at 1 January 2007 (830) (491) – – (881) – – (99) – (55) (2,356)
Net deferred tax balance at 1 January 2007 (793) (489) 604 853 (881) 323 113 (99) 57 (27) (339)
At 1 January 2007 (793) (489) 604 853 (881) 323 113 (99) 57 (27) (339)
Income statement (86) 157 (99) (71) (225) 190 (45) 12 (96) 58 (205)
Statement of recognised income and expense – – 8 – – – (8) – – – –
Acquisition of subsidiary undertaking3 3 (2,973) – 58 – 74 – – 369 (29) (2,498)
Exchange (35) (5) 15 46 (65) 11 2 (1) – (1) (33)
Net deferred tax balance at 31 December 2007 (911) (3,310) 528 886 (1,171) 598 62 (88) 330 1 (3,075)
Deferred tax assets at 31 December 2007 66 59 531 907 – 611 62 – 330 71 2,637
Deferred tax liabilities at 31 December 2007 (977) (3,369) (3) (21) (1,171) (13) – (88) – (70) (5,712)
Net deferred tax balance at 31 December 2007 (911) (3,310) 528 886 (1,171) 598 62 (88) 330 1 (3,075)
Analysed in the balance sheet, after offset of balances within countries, as: 2007
$m		 2006
$m		 2005
$m
Deferred tax assets 1,044 1,220 1,117
Deferred tax liabilities (4,119) (1,559) (1,112)
Net deferred tax balance (3,075) (339) 5

1Untaxed reserves relate to taxable profits where the tax liability is deferred to later periods.

3The deferred tax liability of $2,498m relates to MedImmune, Inc. and other acquisitions made during the course of the year (Note 24).

Unrecognised deferred tax assets

Deferred tax assets of $106m have not been recognised in respect of deductible temporary differences (2006 $103m, 2005 $87m) because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.

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