14. Income taxes

The breakdown of income taxes by origin is as follows:

	2006	2007
€ million
Income taxes paid or accrued
Germany	(139)	(185)
other countries	(624)	(730)
	(763)	(915)
Deferred taxes
from temporary differences	(12)	1,469
from tax loss carryforwards	321	(482)
	309	987
Total	(454)	72

The Bayer Group recognized deferred tax income of €921 million in 2007 (2006: €1 million) due to changes in tax rates, including one-time deferred tax income of €912 million arising in connection with the corporate tax reform in Germany. The latter amount resulted mainly from the remeasurement of the deferred tax liabilities accrued in connection with the Schering acquisition, particularly in order to reflect the lower nominal rates of corporate income tax that apply in Germany from 2008.

The deferred tax assets and liabilities are allocable to the various balance sheet items as follows:

	Dec. 31, 2006		Dec. 31, 2007
€ million	Deferred tax assets	Deferred tax liabilities	Deferred tax assets	Deferred tax liabilities
Intangible assets	157	5,164	464	3,946
Property, plant and equipment	78	936	59	696
Financial assets	104	277	45	293
Inventories	482	374	392	247
Receivables	66	526	52	459
Other assets	24	50	5	26
Provisions for pensions and other post-employment benefits	1,431	503	797	523
Other provisions	791	125	674	404
Liabilities	592	43	487	66
Tax loss carryforwards	1,217	0	777	0
Unused tax loss carryforwards	(85)	0	(113)	0
	4,857	7,998	3,639	6,660
of which noncurrent	2,989	6,813	2,092	5,707
Set-off	(3,652)	(3,652)	(2,794)	(2,794)
Total	1,205	4,346	845	3,866

Utilization of tax loss carryforwards from previous years diminished the amount of income taxes paid or accrued in 2007 by €353 million (2006: €97 million).

The value of existing tax loss carryforwards by expiration date is as follows:

	Dec. 31, 2006	Dec. 31, 2007
€ million
One year	9	4
Two years	14	42
Three years	60	33
Four years	67	32
Five years and thereafter	3,075	2,179
Total	3,225	2,290

In light of operating losses recently experienced in certain jurisdictions, consideration was given to the taxable income available to the Group along with prudent and feasible tax planning strategies.

Deferred tax assets of €664 million (2006: €1,132 million) are recognized on the €1,896 million (2006: €2,981 million) in tax loss carryforwards, including €14 million (2006: €25 million) that could not be recognized in income. It is considered that sufficient income will be available in the future to utilize these tax assets. No deferred tax assets are recognized on loss carryforwards totaling €394 million (2006: €244 million) that can theoretically be utilized over more than one year.

Not capitalizable deferred taxes from existing tax loss carryforwards amount to €113 million (2006: €85 million). This amount resulted chiefly from statutory, economic or other constraints on the offsetting of losses from previous years against taxable income or the expiration of time limits.

Deferred taxes have not been recognized for temporary differences of €3,830 million (2006: €6,486 million) relating to earnings of foreign subsidiaries, either because these profits are not subject to taxation or because they are to be reinvested for an indefinite period. If deferred taxes were recognized for these temporary differences, the liability would be based on the respective withholding tax rates only, taking into account the German tax rate of 5 percent on corporate dividends where applicable. Deferred tax liabilities are recognized for €73 million (2006: €21 million) in planned dividend payments by foreign subsidiaries.

The actual tax income for 2007 is €72 million (2006: expense of €454 million). This figure differs by €867 million (2006: €241 million) from the expected tax expense of €795 million (2006: €695 million) that would result from applying to the pre-tax income of the Group a tax rate of 35.6 percent (2006: 35.1 percent), which is the weighted average of the theoretical tax rates for the individual Group companies.

The reconciliation of theoretical to actual income tax expense (income) for the Group is as follows:

	2006		2007
	€ million	%	€ million	%
Theoretical income tax expense (income)	695	100	795	100

Reduction in taxes due to tax-free income
Tax-free income from affiliated companies and divestiture proceeds	(5)	(1)	(2)	0
Other	(107)	(15)	(47)	(6)

First-time recognition of previously unrecognized deferred tax assets on loss carryforwards	(203)	(29)	(1)	0
Tax effects of changes in tax rates	(1)	0	(921)	(116)
Tax income and expenses relating to other periods	13	2	4	1

Increase in taxes due to non-tax-deductible expenses
Write-downs of investments	8	1	2	0
Expenses related to litigations	1	0	10	1
Other	94	13	85	11

Other tax effects	(41)	(6)	3	0
Actual income tax expense (income)	454	65	(72)	(9)
Effective tax rate in %	22.9		(3.2)