Accounting policy

Source of uncertainty in estimates

Income taxes were distributed as follows:
  2011 2010
Current taxes relating to the period (5,331) (3,668)
Adjustment of current taxes for prior periods 76 180
Deferred taxes originated or reversed during the period (1,584) (747)
Remeasurements of deferred tax assets 25 (67)
Total income taxes (6,814) (4,302)

Provisions have been made for estimated tax charges that may arise as a result of prior tax audits in the Volvo Group. Volvo evaluates tax processes on a regular basis and makes provisions for possible outcome when it is probable that Volvo will have to pay more taxes and when it is possible to make a reasonably assessment of the possible outcome. Tax claims for which no provision was deemed necessary were recognized as contingent liabilities.

Deferred taxes amounting to 1 (93) have been recognized in other comprehensive income, attributable to fair value of derivative instruments. 

At year-end 2011, the Group had unused tax-loss carryforwards amounting to 22,462 (24,869). These loss carryforwards expire according to the table below:

Due date  2011 2010
2012 40 64
2013 77 50
2014 180 190
2015 434 363
2016 2,302 757
2017- 19,429 23,445
Total  22,462 24,869

The Swedish corporate income tax rate is 26.3%. The table below shows the principal reasons for the difference between this rate and the Group's tax rate, based on income after financial items.

  2011, % 2010, %
Swedish corporate income tax rate 26 26
Difference in tax rate in various countries 3 4
Other non-taxable income (3) (3)
Other non-deductible expenses 1 1
Current taxes attributable to prior years 0 (1)
Remeasurement of deferred tax assets 0 1
Income tax rate for the Group 27 28
     
     
Specification of deferred tax assets and tax liabilities 2011 2010
Deferred tax assets:    
  Unused tax-loss carryforwards 6,907 7,327
  Other unused tax credits 141 121
  Intercompany profit in inventories 780 711
  Allowance for inventory obsolescence 368 439
  Valuation allowance for doubtful receivables 482 587
  Provisions for warranties 2,067 1,722
  Provisions for residual value risks 288 306
  Provisions for    
  post-employment benefits 1,188 2,068
  Provisions for restructuring measures 42 61
  Adjustment to fair value during corporate acquisitions 0 12
  Market value of derivative instruments 28 45
  Land 2,204 2,455
  Other deductible temporary differences 4,320 4,594
Deferred tax assets before deduction for valuation allowance 18,815 20,448
     
Valuation allowance (263) (339)
Deferred tax assets after deduction for valuation allowance 18,552 20,109
     
Netting of deferred tax assets/liabilities (5,714) (7,799)
Deferred tax assets, net 12,838 12,310
     
Deferred tax liabilities:    
  Accelerated depreciation on property,    
  plant and equipment 3,811 4,094
  Accelerated depreciation on leasing assets 1,959 2,111
  LIFO valuation of inventories 270 224
  Capitalized product and    
  software development 3,721 3,597
Adjustment to fair value at company acquisitions 31 0
  Untaxed reserves 92 97
  Market value of derivative instruments 1 20
  Other taxable temporary differences 1,464 2,178
Deferred tax liabilities 11,349 12,321
     
Netting of deferred tax assets/liabilities (5,714) (7,799)
Deferred tax liabilities, net 5,636 4,522
     
Deferred tax assets/liabilities, net(1 7,203 7,788

1) The deferred tax assets and liabilities above are partially recognized in the balance sheet on a net basis after taking into account offsetting possibilities. Deferred tax assets and liabilities have been measured at the tax rates that are expected to apply during the period when the asset is realized or the liability is settled, according to the tax rates and tax regulations that have been resolved or announced at the balance-sheet date.

Tax-loss carryforwards are largely attributable to countries with long or indefinite periods of utilization, mainly Sweden, Japan and France. Of the total deferred tax assets of 6,907 (7,327) attributable to tax-loss carryforwards, 2,914 (3,665) pertains to Sweden, with an indefinite period of utilization.

The cumulative amount of undistributed earnings in foreign subsidiaries, which Volvo currently intends to indefinitely reinvest outside of Sweden and upon which deferred income taxes have not been provided is approximately SEK 62 billion (47) at year end. The main part of the undistributed earnings is pertaining to countries where the dividends are not taxable.

Refer to Note 4 for information on how Volvo handles equity currency risk.