This excerpt taken from the CCH 20-F filed Jun 30, 2009.
3. Deferred tax
There are several differences arising on the deferred tax recognition under IFRS and US GAAP, as follows:
US GAAP, FASB Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income
Taxes requires application of a more likely than not threshold to the
recognition and derecognition of uncertain tax positions. FIN 48 permitted us to recognize the amount of tax benefit that has a greater than 50% likelihood of being ultimately realized upon
settlement. It further required that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter of such change. There is no
such provision under IFRS.
US GAAP, FAS No. 109, Accounting for income taxes, a deferred tax liability or asset
shall be recognized for differences between the assigned values and the tax bases of the assets and liabilities recognized in a purchase business combination. If a valuation allowance is recognized
for the deferred tax asset for an acquired entity's operating loss or tax credit carry forwards at the acquisition date, the tax benefits for those items that are first recognized (that is, by
elimination of that valuation allowance) in financial statements after the acquisition date shall be applied (a) first to reduce to zero any goodwill related to the acquisition,
(b) second to reduce to zero other non-current intangible assets related to the acquisition, and (c) third to reduce income tax expense. Deferred taxation valuation
allowances on the deferred tax assets recognized in relation to net operating losses of acquired territories of Coca-Cola Beverages plc, which had been recognized under IFRS, were
recorded instead against goodwill upon acquisition under US GAAP. Any subsequent reduction of deferred taxation valuation allowances under IFRS was not therefore recorded under US GAAP.
In addition, under IFRS, there was no deferred tax liability associated with recognition of goodwill and franchise rights which could be used to offset the deferred tax assets associated with the
pre-acquisition net operating losses for our operation in the Russian Federation. Therefore any valuation allowance recognized was recorded in the profit and loss for the year ended
December 31, 2005. Under US GAAP, both goodwill and franchise rights had been recognized and the resulting recognition of deferred tax liability on franchise rights was used to offset
the deferred tax asset in the year ended December 31, 2005.
IFRS, no deferred taxation is recorded on statutory reserves. Under US GAAP, EITF 93-16, Application
of FASB Statement No. 109 to Basis Differences within Foreign Subsidiaries that Meet the Indefinite Reversal Criterion of APB Opinion No. 23, companies can have
temporary differences within foreign subsidiaries (referred to as "inside-basis differences"), as well as differences between the tax basis and the financial reporting basis of an investment in a
foreign subsidiary (referred to as "outside-basis difference"). Although both the inside and outside basis differences may not reverse in the foreseeable future, thus meeting the indefinite reversal
criterion, APB 23 only relates to outside-basis differences. The indefinite reversal criteria of APB 23 should not be applied to inside-basis differences of foreign subsidiaries and a
deferred tax liability should be provided by the foreign subsidiary for the foreign subsidiaries' inside-basis differences. Thus, the statutory reserves may become taxable in any circumstances the
destination is changed, i.e. through distribution to shareholders (even in case of liquidation), increase of the share capital, to cover previous year's losses, or any other form of
distribution. Foreign currency translation differences have also been recorded regarding this adjustment in subsequent periods.
US GAAP, APB 23, Accounting for Income TaxesSpecial Areas, assumes that all
undistributed earnings of a subsidiary will be transferred to the parent company. Accordingly, the undistributed earnings of a subsidiary included in consolidated income should be accounted for as a
temporary difference unless the local tax legislation provides a means by which the investment in a domestic subsidiary can be recovered tax free. There is no such provision under IFRS.
US GAAP, FAS No. 109, Accounting for Income Taxes, subsidiaries, whose functional
currency is not the reporting currency of the group, report translation adjustments as a component of other comprehensive income (commonly referred to as a cumulative translation adjustment). If a
foreign subsidiary's earnings are not indefinitely reinvested, deferred tax liabilities are required to be provided. In addition, income taxes attributable to translation adjustments are allocated to
other comprehensive income and accumulated as a separate component of shareholders' equity (in a similar manner to the cumulative translation adjustment). There is no such provision under IFRS.
to the Greek tax legislation, companies were allowed to classify a certain percentage of their earnings as tax-free reserves. These
reserves arose from capital expenditures agreed to be carried out within a period of three years. The amounts related to this reserve are not taxed, as long as the obligated amounts are used within
the three-year time period. Under US GAAP, FAS No. 109, Accounting for Income Taxes, a deferred tax liability was recorded on
the Greek tax-free reserves and was reversed when the reserves were utilized as planned. All tax-free reserves were used as at December 31, 2006 and all deferred tax
liabilities recorded under US GAAP were reversed. There is no such provision under IFRS.