Income taxes recognized in the consolidated income statement consist of the following:
|Taxes relating to prior periods||(70)||17|
|Total Income taxes||566||784|
Taxes relating to prior periods include the costs arising from certain disputes with tax authorities net of adjustments to tax contingency reserves.
The effective tax rate for 2014 was 38.2% (effective tax rate of 39.2% in 2013). The decrease of the effective tax rate in 2014 was primarily due to the net result of the exceptional pre-tax charge relating to the re-measurement of Venezuelan assets recognized in 2014, for which no corresponding tax benefi t was recorded, that was more than offset by the favorable resolution of tax audits recorded during 2014.
The reconciliation between the tax charges recorded in the Consolidated Financial Statements and the product of the Profi t before taxes multiplied by the applicable tax rate is as follows:
|Statutory income taxes||319||465|
|Tax effect of permanent differences||10||8|
|Taxes relating to prior years||(70)||17|
|Difference between foreign tax rates and the statutory tax rate||171||272|
|Deferred taxes relating to prior years||(70)||(72)|
|Deferred tax assets not recognized||104||120|
|Use of tax losses for which no deferred tax assets were recognized||(1)||(39)|
|Current and deferred income tax recognized in the Consolidated Financial Statements||566||784|
In the tax rate reconciliation the applicable tax rate (average UK tax rate) is 21.5% for 2014 and 23.25% for 2013. Permanent differences in the above reconciliations include the tax effect of non-taxable income of $166 million in 2014 ($219 million in 2013) and of non-deductible costs of $176 million in 2014 ($227 million in 2013).
In 2014, deferred tax assets had an overall negative effect of $33 million on the reconciliation as the result of the non-recognition of deferred tax assets on temporary differences and tax losses arising during the year of $104 million, partially offset by the recognition of previously unrecognized deferred tax assets of $71 million.
In 2013, deferred tax assets had an overall negative effect of $9 million on the reconciliation as the result of the non-recognition of deferred tax assets on temporary differences and tax losses arising during the year of $120 million, partially offset by the recognition of previously unrecognized deferred tax assets of $111 million.
Other differences include local taxes, including Italy IRAP taxes.
CNH Industrial recognizes in its consolidated statement of fi nancial position within Deferred tax asset, the amount of Deferred tax assets less the Deferred tax liabilities of the individual consolidated companies, where these may be offset. Amounts recognized are as follows:
|($ million)||At December 31, 2014||At December 31, 2013|
|Deferred tax assets||1,655||1,672|
|Deferred tax liabilities||(399)||(302)|
The decrease of $114 million in net deferred tax assets is mainly due to the following:
- for $75 million to the positive tax effect of items recognized directly in equity;
- for $68 million to the negative effect recognized in profi t or loss of the utilization, net of valuation allowances, of deferred tax assets/liabilities recognized on temporary differences and tax losses arising during the year; and
- for $121 million to the negative effect of foreign exchange differences (exchange losses of $136 million) and other changes (increases of $15 million).
In 2014 and 2013, Deferred tax assets, net of Deferred tax liabilities may be analyzed by source as follows:
|($ million)||At December 31, 2013||Recognized in income statement||Charged to|
|Translation differences and other changes||At December 31, 2014|
|Deferred tax assets arising from:|
|Taxed allowances for doubtful accounts||229||(2)||-||(27)||200|
|Provision for employee beneﬁts||561||(54)||13||53||573|
|Write-downs of ﬁnancial assets||95||(15)||-||(10)||70|
|Measurement of derivative ﬁnancial instruments||(21)||66||4||-||49|
|Deferred tax liabilities arising from:|
|Deferred tax on gains on disposal||-||-||-||-||-|
|Provision from employee beneﬁts||(17)||1||2||2||(12)|
|Capitalisation of development costs||(477)||(51)||-||28||(500)|
|Theoretical tax benefit arising from tax loss carryforwards||719||132||2||(33)||820|
|Adjustments for assets whose recoverability is not probable||(684)||(49)||(11)||-||(744)|
|Total Deferred tax assets, net of Deferred tax liabilities||1,370||(68)||75||(121)||1,256|
The decision to recognize Deferred tax assets is taken for each company in the Group by assessing critically whether the conditions exist for the future recoverability of such assets on the basis of updated strategic plans, accompanied by the related tax plans. For this reason, the total theoretical future tax benefi ts arising from deductible temporary differences of $2,722 million at December 31, 2014 and of $2,768 million at December 31, 2013 and tax loss carryforwards of $820 million at December 31, 2014 and of $719 million at December 31, 2013 have been reduced by $744 million at December 31, 2014 and by $684 million at December 31, 2013.
In particular, Deferred tax assets, net of Deferred tax liabilities, include $343 million at December 31, 2014 ($305 million at December 31, 2013) of tax benefi ts arising from tax loss carryforwards. At December 31, 2014, a further tax benefi t of $477 million ($414 million at December 31, 2013) arising from tax loss carryforwards has not been recognized.
Deferred taxes have not been provided on the undistributed earnings of subsidiaries since the Group is able to control the timing of the distribution of these reserves and it is probable that they will not be distributed in the foreseeable future.
The totals of deductible and taxable temporary differences and accumulated tax losses at December 31, 2014, together with the amounts for which deferred tax assets have not been recognized, analyzed by year of expiry, are as follows:
|Year of expiry|
|($ million)||Total at|
|Temporary differences and tax losses:|
|Deductible temporary differences||10,162||4,190||1,610||1,479||1,172||1,704||7|
|Taxable temporary differences||(4,617)||(760)||(969)||(961)||(877)||(994)||(56)|
|Temporary differences and tax losses for which deferred tax assets have not been recognized||(3,923)||(331)||(282)||(362)||(970)||(793)||(1,185)|
|Temporary differences and tax losses||5,218||3,128||382||185||8||440||1,075|