Deferred tax assets and deferred tax liabilities are recognized for all temporary differences between the values reported in the tax balance sheets of the individual companies and the consolidated balance sheet using the liability method. Based on the good results in the past and the positive results to be expected, MTU Aero Engines Holding AG is confident that the future taxable income of MTU Aero Engines Holding AG and other subsidiary companies will be sufficient for realization of deferred tax assets. Up to December 31, 2005, all domestic deferred taxes were determined by temporary differences on the basis of a combined 40.4 % tax rate. In the financial year 2005, the corporate tax rate was 25% plus the solidarity surcharge of 5.5% on the corporate tax charge. This results in a effective corporate tax rate of 26.4 %. The trade tax amounts to 14% after corporate tax is taken into consideration, which means the total tax rate comes to 40.4%.
The actual tax expense is 2.1 million above the expected tax expense that would have resulted from application of the rate for tax on distributed earnings for MTU Aero Engines Holding AG. In the previous year, actual tax expense was 3.7 million higher than expected.
Purchase price distributions associated with purchases made during the previous business year resulted in an additional depreciation volume of 63.3 million, which lowered earnings but was not taken into account for taxation.
Factors that affected the rise of the total tax rate included interest from purchase financing in the amount of 37.7 million, which was added in part when determining income tax, as well as 2.9 million in valuation allowances for tax losses carried forward for MTU Maintenance Canada Ltd., Canada, and 1.5 million for those of MTU Aero Engines North America Inc., USA.
Text item 29 details the balance sheet items under which the tax accruals and deferrals are classified.
13. Earnings per share
