22. Income taxes

With the exception of Industria de Diseño Textil, S.A., Indipunt, S.L. and Tempe, S.A., the companies whose information is included in these consolidated annual accounts file individual tax returns.

Industria de Diseño Textil, S.A. is the parent of a group of companies that files consolidated tax returns in Spain. The consolidated tax group is composed of Industria de Diseño Textil, S.A., the Parent, and Spanish subsidiaries which comply with prevailing tax legislation for filing consolidated tax returns. The subsidiaries that comprise this tax group are the following:

Bershka BSK España, S.A. Lefties España, S.A. Stear, S.A.
Bershka Diseño, S.L. Lefties Logística, S.A. Stradivarius Diseño, S.L.
Bershka Logística, S.A. Massimo Dutti Diseño, S.L. Stradivarius España, S.A.
Choolet, S.A. Massimo Dutti Logística, S.A. Stradivarius Logística, S.A.
Comditel, S.A. Massimo Dutti, S.A. Tordera Logísitica, S.L.
Confecciones Fíos, S.A. Nikole, S.A. Trisko, S.A.
Confecciones Goa, S.A. Nikole Diseño, S.L. Uterqüe DIseño, S.L.
Denllo, S.A. Oysho Diseño, S.L. Uterqüe España, S.A.
Fashion Logistics Forwarders, S.A. Oysho España, S.A. Uterqüe Logística, S.A.
Fashion Retail España, S.A. Oysho Logística, S.A. Uterqüe, S.A.
Fibracolor, S.A. Plataforma Cabanillas, S.A. Zara Diseño, S.L.
Glencare, S.A. Plataforma Europa, S.A. Zara España, S.A.
Goa-Invest, S.A. Plataforma Logística León, S.A. Zara Home Diseño, S.L.
Grupo Massimo Dutti, S.A. Plataforma Logística Meco, S.A. Zara Home España, S.A.
Hampton, S.A. Pull & Bear Diseño, S.L. Zara Home Logística, S.A.
Inditex, S.A. Pull & Bear España, S.A. Zara Logística, S.A.
Inditex Logística, S.A. Pull & Bear Logística, S.A. Zara, S.A.
Kiddy´s Class España, S.A. Samlor, S.A. Zintura, S.A.

Indipunt, S.L. is the parent of another tax group formed by it and the subsidiary Indipunt Diseño, S.L.

Also, Tempe, S.A. is the parent of the tax group formed with its subsidiaries Tempe Diseño, S.L. and Tempe Logística, S.A.

“Income tax payable” in the consolidated balance sheet corresponds to the 2012 income tax provision, net of withholdings and payments on account made during the period. “Trade and other payables” includes the liability deriving from the other applicable taxes.

“Income tax receivable” in the consolidated balance sheet essentially corresponds to amounts recoverable from the tax authorities. “Trade and other receivables” in the consolidated balance sheet includes mainly the amount by which the input VAT exceeded output VAT.

Industria de Diseño Textil S. A. holds a 49% stake in one Economic Interest Grouping, a 50% stake in two Economic Interest Groupings, and a 49.5% stake in two other Economic Interest Groupings. These Groupings lease assets as their activity. They requested from the tax authorities, and were granted, tax incentives in accordance with income tax legislation.

The aforementioned operations have given rise to positive and negative adjustments to taxable income mentioned above, which have been treated as permanent differences. A euros 2,278 thousand tax credit for investments (euros 10,184 thousand in 2011) was also applied for these operations. In 2012 the cost of the investment was adjusted by euros 251 thousand (euros 2,328 thousand in 2011) and a deferred tax liability was reduced by euros 4,200 thousand (euros 6,338 in 2011). The effects of these adjustments are recognized in the income tax expense account, representing, in total, a reduction in the expense of euros 292 thousand (euros 4,009 thousand in 2011).

The income tax expense comprises both current and deferred tax. Current tax is the amount of income taxes payable in respect of the taxable profit for the year. Deferred tax is the amount of income taxes payable or recoverable in future years and arises from the recognition of deferred tax assets and liabilities.

The income tax expense comprises the following:


 2012 2011
Current taxes 791,743 719,949
Deferred taxes (27,787) (106,469)

A reconciliation of the income tax expense under the prevailing Spanish general income tax rate to “Profit before tax” and the expense recorded in the consolidated income statement for 2012 and 2011 is as follows:


 2012 2011
Consolidated accounting income before taxes 3,130,969 2,559,012
Income tax expense at tax rate prevailing in the country of the Parent company 939,291 767,704
Net permanent differences:

Individual companies (109,380) (97,892)
Consolidation adjustments 591 38,386
Effect of tax rates in foreign jurisdictions (98,246) (86,646)
Capitalization of prior years' losses and credits (2,380) 206
Adjustment to prior years' taxes (2,921) 31,431
Withholding and other adjusments 60,968 (2,862)
Adjustments to deferred tax assets and liabilities (4,871) (12,324)
Use of tax losses previously not recognised (945)
Tax credits and benefits (18,151) (24,523)
Income tax expense 763,956 613,480

Permanent differences mainly correspond to non-deductible expenses, the allocation of taxable income to EIGs and the portion attributable to taxable income related to a contribution of rights to use certain assets to a subsidiary and the exemption of income from permanent establishments abroad.

Temporary differences are the difference between the carrying amount of an asset or liability and its tax base. The consolidated balance sheet at 31 January 2013 reflects the deferred tax assets and liabilities at that date.

Details of “Deferred tax assets” and “Deferred tax liabilities” in the accompanying consolidated balance sheet are as follows:

Deferred tax assets: 2012 2011
Provisions 43,671 50,656
Amortisation 80,212 65,114
Lease incentives 21,424 19,107
Valuation adjustments relating investees 54,830 41,019
Tax losses 53,242 48,432
Intragroup transactions 91,534 81,264
Other 37,641 50,780
Total 382,554 356,372
Deferred tax liabilities: 2012 2011
Leasing operations 2,875 1,970
Intragroup transactions 43,217 35,094
Amortisation 57,799 43,624
Valuation adjustments relating to investees 47,469 46,392
Reinvestment of profits 3,957 3,957
Other 36,336 51,494
Total 191,653 182,531

Movement in deferred tax assets and liabilities in 2012 and 2011 is as follows:


 Deferred tax assets Deferred tax liabilities
Balance at 01/02/2012 356,372 182,531
Charge/credit to income statement (44,445) 16,658
Charge/credit to reserves 18,263 (7,536)
Balance at 31/01/2013 382,554 191,653

These balances have been determined based on tax rates which, according to enacted tax legislation, will be in force during the years in which the balances are expected to reverse and which, in certain cases, differ from the tax rates prevailing in the current year.

Certain companies forming part of the consolidated Group have reserves which could be taxable if distributed. These consolidated annual accounts include the tax effect of those cases in which a firm decision has been taken to distribute reserves.

As permitted by the prevailing tax legislation in each country, Group companies took tax credits amounting to euros 18,151 thousand in 2012 (euros 24,523 thousand at 31 January 2011). These tax credits and tax relief relate mainly to investments and, to a lesser extent, to other tax benefits.

At 31 January 2013, the Group had tax losses of euros 208,713 thousand (euros 186,140 thousand at 31 January 2012) which may be offset against future profits, the majority of which may be utilized indefinitely. Deferred tax assets in respect of tax losses are recognized when there is evidence that future taxable profits will be available against which the asset can be utilized.

Certain foreign subsidiaries are undergoing tax inspections, including most notably those domiciled in the US, Greece and France. The Group does not expect that significant additional liabilities will arise as a result of these inspections or those that could be carried out in the future in relation to periods that have not yet expired.

Lastly, the years open to inspection by the tax authorities for the main applicable taxes vary depending on the tax legislation in each country. No liabilities with a significant effect on the Group’s equity or results are expected to arise in the event of an inspection of the years open to inspection.