Notes to the Financial Statements (Group)
- 1 Operating profit
- 2 Finance income and expense
- 3 Taxation
- 4 Earnings per $0.25 Ordinary Share
- 5 Segment information
3 Taxation
Taxation recognised in the income statement is as follows:
| 2008 $m |
2007 $m |
2006 $m |
|
|---|---|---|---|
| Current tax expense Current year |
2,946 | 1,890 | 2,431 |
| Adjustment for prior years | 130 | 261 | 270 |
| 3,076 | 2,151 | 2,701 | |
| Deferred tax expense Origination and reversal of temporary differences |
(486) | 379 | (81) |
| Adjustment to prior years | (39) | (174) | (140) |
| (525) | 205 | (221) | |
| Total taxation expense in the income statement | 2,551 | 2,356 | 2,480 |
Taxation has been provided at current rates on the profits earned for the periods covered by the Group Financial Statements. The 2008, 2007 and 2006 prior period current tax adjustments relate mainly to tax accrual to tax return adjustments, an increase in provisions in respect of a number of transfer pricing audits and double tax relief. The 2008, 2007 and 2006 prior year deferred tax credits relate to tax accrual to tax 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 and branches for which deferred tax liabilities have not been recognised totalled approximately $8,449m at 31 December 2008 (2007: $12,639m; 2006: $13,291m).
Consolidated statement of recognised income and expense
The current tax credit on consolidation exchange adjustments taken to reserves amounted to $20m in 2008 (2007: $32m; 2006: $62m). The current tax credit on share-based payments amounted to $nil (2007: $1m; 2006: $36m). The deferred tax credit taken to reserves amounted to $348m in 2008 (2007: $nil; 2006: $39m).
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 25.
Tax reconciliation to UK statutory rate
The table shown below reconciles the UK statutory tax charge to the Group’s total tax charge.
| 2008 $m |
2007 $m |
2006 $m |
|
|---|---|---|---|
| Profit before tax | 8,681 | 7,983 | 8,543 |
| Notional taxation charge at UK corporation tax rate of 28.5%1 (30% for 2007, 30% for 2006) | 2,474 | 2,395 | 2,563 |
| Differences in effective overseas tax rates | (8) | (105) | (156) |
| Deferred tax income relating to reduction in Swedish, UK and other tax rates2 | (70) | (57) | – |
| Unrecognised deferred tax asset | (7) | (1) | (6) |
| Items not deductible for tax purposes | 119 | 70 | 58 |
| Items not chargeable for tax purposes | (48) | (33) | (109) |
| Adjustments in respect of prior periods | 91 | 87 | 130 |
| Total tax charge for the year | 2,551 | 2,356 | 2,480 |
1The UK statutory tax rate was reduced from 30% to 28% effective from 1 April 2008 resulting in the effective tax rate for the Group for 2008 being 28.5%.
2The 2008 item relates to the reduction in the Swedish statutory corporation tax rate from 28% to 26.3% effective from 1 January 2009. The majority of the 2007 item relates to the reduction in the UK statutory corporation tax rate referred to above.
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 2007 |
37 | 2 | 604 | 853 | – | 323 | 113 | – | 57 | 28 | 2,017 |
| Deferred tax liabilities at 1 January 2007 |
(502) | (819) | – | – | (881) | – | – | (99) | – | (55) | (2,356) |
| Net deferred tax balance at 1 January 20072 |
(465) | (817) | 604 | 853 | (881) | 323 | 113 | (99) | 57 | (27) | (339) |
| Income statement | (130) | 201 | (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 20072 |
(627) | (3,594) | 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 | (693) | (3,653) | (3) | (21) | (1171) | (13) | – | (88) | – | (70) | (5,712) |
| Net deferred tax balance at 31 December 2007 |
(627) | (3,594) | 528 | 886 | (1,171) | 598 | 62 | (88) | 330 | 1 | (3,075) |
| Income statement | 122 | 375 | 24 | 55 | (119) | 37 | 43 | – | 12 | (24) | 525 |
| Statement of recognised income and expense | – | – | 340 | – | – | – | 9 | – | – | (1) | 348 |
| Exchange | 168 | 130 | (113) | (35) | 199 | (37) | (14) | 24 | (7) | (3) | 312 |
| Net deferred tax balance at 31 December 2008 |
(337) | (3,089) | 779 | 906 | (1,091) | 598 | 100 | (64) | 335 | (27) | (1,890) |
| Deferred tax assets at 31 December 2008 | 136 | 42 | 786 | 935 | – | 598 | 100 | – | 335 | 45 | 2,977 |
| Deferred tax liabilities at 31 December 2008 | (473) | (3,131) | (7) | (29) | (1,091) | – | – | (64) | – | (72) | (4,867) |
| Net deferred tax balance at 31 December 2008 |
(337) | (3,089) | 779 | 906 | (1,091) | 598 | 100 | (64) | 335 | (27) | (1,890) |
| Analysed in the balance sheet, after offset of balances within countries, as: | 2008 $m |
2007 $m |
2006 $m |
||||||||
| Deferred tax assets | 1,236 | 1,044 | 1,220 | ||||||||
| Deferred tax liabilities | (3,126) | (4,119) | (1,559) | ||||||||
| Net deferred tax balance | (1,890) | (3,075) | (339) | ||||||||
1 Untaxed reserves relate to taxable profits where the tax liability is deferred to later periods.
2 During 2008, the Group carried out a review of its deferred tax balances resulting in a reclassification of a deferred tax liability of $284m from property, plant and equipment to intangible assets as at 31 December 2007 ($328m as at 1 January 2007).
3 The deferred tax liability of $2,498m relates to MedImmune, Inc. and other acquisitions.
Unrecognised deferred tax assets
Deferred tax assets of $80m have not been recognised in respect of deductible temporary differences (2007: $106m; 2006: $103m) because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.
