Income tax expense
In 2008 and 2007, pre-tax income was SEK 26,411 million and SEK 25,251 million, respectively. Income tax expense was distributed as follows.
|
|
January–December | |
|---|---|---|
| SEK in millions | 2008 | 2007 |
| Tax items brought to income |
|
|
| Current tax expense relating to current year | -3,083 | -5,623 |
| Underprovided or overprovided current tax expense in prior years | -36 | -158 |
| Deferred tax expense originated or reversed in current year | -2,926 | 88 |
| Recognition of previously unrecognized deferred taxes | 625 | 845 |
| Effect on deferred tax income (+)/expense (-) from changes in tax rates | 451 | -105 |
| Total tax expense brought to income | -4,969 | -4,953 |
| Tax items recognized directly in shareholders' equity |
|
|
| Current tax income | 303 | 44 |
| Deferred tax income (+)/expense (-) | 87 | -14 |
| Total tax income recognized directly in shareholders' equity | 390 | 30 |
The difference between the nominal Swedish income tax rate and the effective tax rate comprises the following components.
|
|
January–December | |
|---|---|---|
| Percent | 2008 | 2007 |
| Swedish income tax rate | 28.0 | 28.0 |
| Effect of higher or lower tax rates in subsidiaries | -2.4 | -1.7 |
| Withholding tax on dividends from subsidiaries, associate companies and joint ventures | 4.8 | 2.2 |
| Underprovided or overprovided current tax expense in prior years | 0.1 | 0.6 |
| Recognition of previously unrecognized tax losses | -2.4 | -3.4 |
| Effect on deferred tax expense from changes in tax rates | -1.7 | 0.4 |
| Income from associated companies and joint ventures | -9.7 | -8.5 |
| Current year losses for which no deferred tax asset was recognized | 1.9 | 2.2 |
| Non-deductible expenses | 0.4 | 0.1 |
| Tax-exempt income | -0.2 | -0.3 |
| Tax rate as per the income statement | 18.8 | 19.6 |
| Tax recognized directly in shareholders' equity | -1.5 | -0.1 |
| Effective tax rate | 17.3 | 19.5 |
In December 2008, the Swedish parliament passed changes to the tax legislation, including, among others, a reduction of the Swedish corporate income tax rate from 28 percent to 26.3 percent effective January 1, 2009. This triggered a recalculation of existing deferred tax assets and liabilities in TeliaSonera's Swedish operations, resulting in a net deferred tax income of SEK 395 million in 2008. The corresponding one-off effect of other corporate income tax-rate changes enacted in 2008 (the Czech Republic, Georgia, Italy, Kazakhstan, Lithuania, the Russian Federation and the UK) was a net deferred tax income, totaling SEK 56 million.
Income tax assets and liabilities
Deferred tax assets and liabilities changed as follows.
|
|
December 31, | |
|---|---|---|
| SEK in millions | 2008 | 2007 |
| Deferred tax assets |
|
|
| Opening balance | 12,017 | 12,054 |
| Operations acquired | 22 | 66 |
| Income statement period change | -1,013 | -950 |
| Recognized in equity | 87 | -14 |
| Reclassifications | 379 | 334 |
| Exchange rate differences | 1,714 | 527 |
| Deferred tax assets, closing balance | 13,206 | 12,017 |
| Deferred tax liabilities |
|
|
| Opening balance | 9,577 | 10,121 |
| Operations acquired | 464 | 774 |
| Operations divested | -563 | – |
| Income statement period change | 837 | -1,778 |
| Reclassifications | 353 | 431 |
| Exchange rate differences | 592 | 29 |
| Deferred tax liabilities, closing balance | 11,260 | 9,577 |
For changes in deferred tax assets and liabilities related to operations acquired in 2008, see Note 34 “Business Combinations, etc.”
Temporary differences in deferred tax assets and liabilities were as follows.
|
|
December 31, | |
|---|---|---|
| SEK in millions | 2008 | 2007 |
| Gross deferred tax assets |
|
|
| Unrealized gain, associated companies | 48 | 48 |
| Delayed depreciation, impairment losses and fair value adjustments, other non-current assets | 6,654 | 5,782 |
| Delayed expenses for provisions | 655 | 255 |
| Doubtful current receivables | 135 | 191 |
| Tax loss carry-forwards | 10,151 | 9,481 |
| Subtotal | 17,643 | 15,757 |
| Valuation allowances |
|
|
| Delayed depreciation, other non-current assets | -40 | -132 |
| Tax loss carry-forwards | -3,927 | -2,918 |
| Subtotal | -3,967 | -3,050 |
| Off-set deferred tax liabilities/assets | -470 | -690 |
| Total deferred tax assets | 13,206 | 12,017 |
| Deferred tax liabilities |
|
|
| Withholding taxes and impairment losses, subsidiaries and associated companies | 2,082 | 1,322 |
| Accelerated depreciation and fair value adjustments, other non-current assets | 6,535 | 6,094 |
| Fair value adjustments, provisions | 1,521 | 653 |
| Delayed revenue recognition, current receivables | 34 | 52 |
| Profit equalization reserves | 1,558 | 2,146 |
| Subtotal | 11,730 | 10,267 |
| Off-set deferred tax assets/liabilities | -470 | -690 |
| Total deferred tax liabilities | 11,260 | 9,577 |
| Net deferred tax assets | 1,946 | 2,440 |
| Net increase (+)/decrease (-) in valuation allowance | 917 | -52 |
Unrecognized deferred tax assets, as reflected by the valuation allowance at December 31, 2008, are expected to expire as follows.
|
Expected expiry SEK in millions |
2009 | 2010 | 2011 | 2012 | 2013 | 2014–2026 | Unlimited | Total |
|---|---|---|---|---|---|---|---|---|
| Unrecognized deferred tax assets | 3 | 6 | 405 | 13 | 61 | 2,549 | 890 | 3,927 |
Unrecognized deferred tax liabilities for undistributed earnings in subsidiaries, including estimated such income tax that is levied on dividends paid, totaled SEK 1,031 million in 2008 and SEK 963 million in 2007.
Tax loss carry-forwards
Deferred tax assets originating from tax loss carry-forwards mainly relate to Finland and Spain.
Tax losses in Finland refer mainly to impairment losses on the European 3G investments recognized by TeliaSonera Finland Oyj (formerly Sonera Oyj) in 2002 and to capital losses on shares divested in 2003 by another subsidiary within the Finnish tax group. Following a positive advance ruling by the Finnish tax authorities related to losses incurred in Telia's former mobile operations in Finland during 2001, 2002 and 2004, an additional deferred tax asset was recognized, amounting to SEK 234 million as of December 31, 2008.
Tax losses in Spain refer to the Spanish 3G mobile network operator Xfera that was acquired in 2006. Xfera is a start-up operation that has reported tax losses since its incorporation in 2000, due to annual spectrum fees invoiced by the Spanish government authorities, depreciation and write-downs of earlier investments, other pre-operating losses and additional operating losses incurred thereafter. As of December 31, 2008, Xfera had tax losses and taxable temporary differences totaling SEK 10.7 billion. As is the normal case for start-up operations, management projects tax losses also during the next few years.
At the current stage of the 3G market and due to the decreases in equipment prices in the past few years, management is, however, confident that Xfera will be able to generate taxable profits, and has prepared a robust business plan based on a sound business model with detailed and benchmarked data, and has also convinced other parties to invest alongside TeliaSonera. As a result, management believes that the current tax losses will be utilized before they expire after 15 years from the first profitable year. However, management acknowledges that the threshold for recognizing deferred tax assets in a situation of recurring historical losses is higher than for other assets, and has therefore reduced its projections to a level which it is convinced that Xfera will reach. As of December 31, 2008, based on these projections, management has recognized a deferred tax asset of SEK 772 million after valuation allowance.
TeliaSonera's accumulated tax loss carry-forwards were SEK 36,822 million in 2008 and SEK 35,277 million in 2007. Tax loss carry-forwards as of December 31, 2008 are expected to expire as follows.
|
Expected expiry SEK in millions |
2009 | 2010 | 2011 | 2012 | 2013 | 2014–2026 | Un-limit-ed | Total |
|---|---|---|---|---|---|---|---|---|
| Tax loss carry-forwards |
20 | 26 | 1,929 | 15,503 | 3,107 | 11,851 | 4,386 | 36,822 |
Most of the Finnish tax loss carry-forwards expire in 2012.