BAK » Topics » (m) Income taxes

This excerpt taken from the BAK 20-F filed Jun 30, 2008.

(m) Income taxes

Under Brazilian GAAP, according to CVM Deliberation 273/98 and CVM Instruction 371/02, the deferred income tax asset represents the estimated amount to be recovered.

In addition, under Brazilian GAAP no deferred tax asset is recognized relating to temporary timing differences or income tax losses which are expected to be realized after a period of ten years from the balance sheet date.

Under U.S. GAAP, deferred taxes are accrued on all temporary tax differences. Deferred tax assets and liabilities are classified as current or long-term based on the classification of the asset or liability underlying the temporary difference.

According to SFAS 109, Brazilian nominal rate is applied for U.S. GAAP reporting purposes, however there is no limit to the period in which irrevocable tax credits may be realized and the valuation allowance recognition for Brazilian GAAP purposes at December 31, 2007 in the amount of R$ 2.8 (2006 - R$ 11.9) has been reversed for U.S. GAAP purposes.

The adjustment for deferred taxes are disclosed in the U.S. GAAP reconciliation for the statement of operations under U.S. GAAP in the amount of R$ 94.6, R$ (123.2) and R$ 39.9 in 2007, 2006 and 2005, respectively.

There are neither accrued interests nor penalties during 2007 in the condensed statement of operations since it is more likely than not that Braskem and subsidiaries will not have any adjustment to its tax returns filed to various tax authorities.

Each year the company files income tax returns in the various national taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the taxing authorities. Positions challenged by the taxing authorities may be settled or appealed by the company. With few exceptions, the Company and subsidiaries are no longer subject to Brazilian federal, state and local, nor non-Brazilian income tax examinations by various tax authorities for years before December 31, 2002.

Uncertainties in income taxes are recognized in the company's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes" (SFAS 109). In 2006, the FASB issued FASB Interpretation No. 48 - FIN 48, which clarifies the application of SFAS 109 by defining criteria that an individual income tax position must meet for any part of the benefit of that position to be recognized in an enterprise's financial statements and provides guidance on measurement, derecognition, classification, accounting for interest and penalties, accounting in interim periods, disclosure, and transition.

F-113


Table of Contents

Braskem S.A. and Its Subsidiaries 
 
Notes to the Consolidated Financial Statements 
at December 31, 2007, 2006 and 2005 
All amounts in millions of reais, unless otherwise indicated 
 

In accordance with the transition provisions, the company adopted FIN 48 effective January 1, 2007, for which there are neither unrecognized tax benefits to be disclosed under this rule nor interests and penalties accounted for by the Company.

Interest and penalties raised on tax uncertain position are recognized within income statement whenever tax benefits are considered to be “more likely than not” realizable for settling/netting them under tax and accounting rules.

This excerpt taken from the BAK 20-F filed Jun 23, 2006.

(m) Income taxes

 

Under Brazilian GAAP, according to CVM Deliberation 273/98 and CVM Instruction Nº 371/02, the deferred income tax asset represents the estimated amount to be recovered.

 

Under U.S. GAAP, deferred taxes are accrued on all temporary tax differences. Deferred tax assets and liabilities are classified as current or long-term based on the classification of the asset or liability underlying the temporary difference. Deferred income tax assets and liabilities in the same tax jurisdiction are netted rather than presented gross.

 

In addition, under Brazilian GAAP no deferred tax asset is recognized relating to temporary timing differences or income tax losses which are expected to be realized after a period of ten years from the balance

 

F-68


Table of Contents

Braskem S.A. and its Subsidiaries

 

Notes to the Consolidated Financial Statements—(Continued)

at December 31, 2005, 2004 and 2003

All amounts in millions of reais, unless otherwise indicated

 

sheet date. Under U.S. GAAP there is no limit to the period in which deferred tax assets may be realized and the valuation allowance recognition for Brazilian GAAP purposes at December 31, 2005 in the amount of R$ 20.5 (2004 – R$ 26.8) was reversed for U.S. GAAP purposes.

 

For purposes of the U.S. GAAP reconciliation, the adjustment for deferred taxes relates to the U.S. GAAP adjustments. Additional income tax (charges) in the reconciliation benefits relating to other U.S. GAAP adjustments were recognized in the statement of operations under U.S. GAAP of R$ 39.9, R$ 48.8 and R$ (20.6) in 2005, 2004 and 2003, respectively.

 

EXCERPTS ON THIS PAGE:

20-F
Jun 30, 2008
20-F
Jun 23, 2006
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