Income taxes

The tax expense on income before tax amounted to EUR 100 million (2008: EUR 256 million, 2007: EUR 582 million).

The components of income before taxes and income tax expense are as follows:

The components of deferred tax expense are as follows:

Philips’ operations are subject to income taxes in various foreign jurisdictions. The statutory income tax rates vary from 10.0% to 40.7%, which causes a difference between the weighted average statutory income tax rate and the Netherlands’ statutory income tax rate of 25.5%. (2008: 25.5%; 2007: 25.5%).

A reconciliation of the weighted average statutory income tax rate to the effective income tax rate is as follows:

The weighted average statutory income tax rate increased in 2009 compared to 2008, as a consequence of a change in the country mix of income tax rates, as well as a change of the mix of profits and losses in the various countries.

The effective income tax rate is higher than the weighted average statutory income tax rate in 2009, mainly due to new losses carried forward not expected to be realized, non-tax-deductible impairment charges and costs, and income tax expenses due to tax provisions for uncertain tax positions, which were partly offset by non-taxable gains on the sale of securities and other non-taxable income, as well as incidental tax benefits, mainly related to the recognition of a deferred tax asset for Lumileds.

Deferred tax assets and liabilities

Net deferred tax assets relate to the following balance sheet captions and tax loss carryforwards (including tax credit carryforwards), of which the movements during the years 2009 and 2008, respectively are as follows:

The column ‘other’ primarily includes balance sheet changes amounting to EUR 46 million and foreign currency translation differences which were recognized in equity.

Other provisions include a EUR 251 million deferred tax asset position of legal claims for asbestos.

The column ‘other’ primarily includes foreign currency translation differences of EUR 56 million which were recognized in equity and balance sheet changes amounting to EUR 14 million.

Deferred tax assets and liabilities relate to the following balance sheet captions, as follows:

Deferred tax assets are recognized for temporary differences, unused tax losses, and unused tax credits to the extent that realization of the related tax benefits are probable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the countries where the deferred tax assets originated and during the periods when the deferred tax assets become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

The net deferred tax assets of EUR 713 million (2008: EUR 347 million) consist of deferred tax assets of EUR 1,243 million (2008: EUR 931 million) in countries with a net deferred tax asset position and deferred tax liabilities of EUR 530 million (2008: EUR 584 million) in countries with a net deferred tax liability position. Of the total net deferred tax assets of EUR 1,243 million at December 31, 2009, (2008: EUR 931 million), EUR 616 million (2008: EUR 291 million) is recognized in respect of fiscal entities in various countries where there have been fiscal losses in the current or preceding period. Management’s projections support the assumption that it is probable that the results of future operations will generate sufficient taxable income to utilize these deferred tax assets.

At December 31, 2009 and 2008, there were no recognized deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain foreign subsidiaries of Philips Holding USA (PHUSA) since it has been determined that undistributed profits of such subsidiaries will not be distributed in the foreseeable future. The temporary differences associated with the investments in subsidiaries of PHUSA, for which a deferred tax liability has not been recognized, aggregate to EUR 29 million.

At December 31, 2009, operating loss carryforwards expire as follows:

The Company also has tax credit carryforwards of EUR 104 million, which are available to offset future tax, if any, and which expire as follows:

At December 31, 2009, operating loss and tax credit carryforwards for which no deferred tax assets have been recognized in the balance sheet, expire as follows:

Classification of the income tax payable and receivable is as follows: