Accounting policy

Sources of estimation uncertainty

Income taxes were distributed as follows:
  2012 2011
Current taxes relating to the period (3,566) (5,331)
Adjustment of current taxes for prior periods (144) 76
Deferred taxes originated or reversed during the period (568) (1,584)
Remeasurements of deferred tax assets 180 25
Total income taxes (4,097) (6,814)

Provisions have been made for estimated tax charges that may arise as a result of prior tax audits. Tax processes are evaluated on a regular basis and provisions are made for possible outcome when it is probable that the Volvo Group 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 0 (1) have been recognized in other comprehensive income, attributable to fair value of derivative instruments. 

At year-end 2012, the Volvo Group's unused tax-loss carryforwards amounted to 18,396 (22,462). These loss carryforwards expire according to the table below:

  Dec 31, Dec 31,
Due date  2012 2011
after 1 year 76 40
after 2 years 148 77
after 3 years 267 180
after 4 years 950 434
after 5 years 466 2,302
after 6 years or more 16,489 19,429
Total  18,396 22,462

The Swedish corporate income tax rate amounted 26.3% in 2012. The table below discloses the principal reasons for the difference between this rate and the Volvo Group's tax rate, based on income after financial items.

  2012, 2011,
  % %
Swedish corporate income tax rate 26 26
Difference in tax rate in various countries 3 3
Other non-taxable income (3) (3)
Other non-deductible expenses 1 1
Current taxes attributable to prior years 1 0
Remeasurement of deferred tax assets (1) 0
Income tax rate for the Group 27 27
     
     
From 2013 the Swedish corporate income tax rate is 22% as of December 31, 2012. Deferred tax assets and tax liabilities in the Swedish companies have been valued at the new tax rate which has affected income taxes in the income statement positively by 213.
     
Specification of deferred tax assets and tax liabilities Dec 31,
2012
Dec 31,
2011
Deferred tax assets:    
  Unused tax-loss carryforwards 5,232 6,907
  Other unused tax credits 171 141
  Intercompany profit in inventories 1,026 780
  Allowance for inventory obsolescence 443 368
  Valuation allowance for doubtful receivables 568 482
  Provisions for warranties 2,257 2,067
  Provisions for residual value risks 302 288
  Provisions for    
  post-employment benefits2) 1,850 1,188
  Provisions for restructuring measures 219 42
  Adjustment to fair value during corporate acquisitions 1 0
  Market value of derivative instruments 33 28
  Land 1,872 2,204
  Other deductible temporary differences 4,602 4,320
Deferred tax assets before deduction for valuation allowance 18,577 18,815
     
Valuation allowance (191) (263)
Deferred tax assets after deduction for valuation allowance 18,386 18,552
     
Netting of deferred tax assets/liabilities (7,220) (5,714)
Deferred tax assets, net 11,166 12,838
     
Deferred tax liabilities:    
  Accelerated depreciation on property,    
  plant and equipment 3,176 3,811
  Accelerated depreciation on leasing assets 2,064 1,959
  LIFO valuation of inventories 362 270
  Capitalized product and    
  software development 3,393 3,721
Adjustment to fair value at company acquisitions 0 31
  Untaxed reserves 92 92
  Market value of derivative instruments 0 1
  Provisions for    
  post-employment benefits2) 686 -
  Other taxable temporary differences 2,476 1,464
Deferred tax liabilities 12,248 11,349
     
Netting of deferred tax assets/liabilities (7,220) (5,714)
Deferred tax liabilities, net 5,028 5,636
     
Deferred tax assets/liabilities, net1) 6,138 7,203

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.
2) From 2012 provisions for post-employment benefits are accounted gross. For 2011 the gross amounts were 1,773 (deferred tax assets) and 585 (deferred tax liabilities).

The total deferred tax assets attributable to unused tax-loss carryforwards amounted to 5,232 (6,907) of which 1,815 (2,914) pertains to Sweden, with an indefinite period of utilization, 1,409 (2,128) to Japan and 1,278 (1,174) to France.

The cumulative amount of undistributed earnings in foreign subsidiaries, which the Volvo Group currently intends to indefinitely reinvest outside of Sweden and upon which deferred income taxes have not been provided is SEK 60 billion (62) 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 the Volvo Group handles equity currency risk.