8. Income taxes

A breakdown of taxes recognized in the income statement is provided below:

(€ thousand) 2012 2011
Current taxes:    
-IRES (19,948) (36,663)
-IRAP - -
-Other current taxes 12 253
Total current taxes (19,936) (36,410)
Deferred taxes for the period:    
-IRES 4,051 -
-IRAP - 1,145
Total deferred taxes for the period 4,051 1,145
Taxes relating to prior periods (15,168) (8,536)
Total income taxes (31,053) (43,801)

Current IRES tax for 2012 relates to compensation receivable by Fiat S.p.A. (€19,948 thousand) for tax loss carryforwards contributed to the domestic tax consolidation scheme.

Other current taxes for 2012 relate to rebates on tax withheld outside Italy.

Deferred IRES tax, totaling €4,051 thousand, related to the portion of taxable timing differences not offset by loss carryforwards.

Taxes relating to prior periods (€15,168 thousand) primarily represents income related to the prior year’s domestic tax consolidation.

A reconciliation between theoretical income taxes determined on the basis of tax rates applicable in Italy and income taxes reported in the financial statements is as follows:

(€ thousand) 2012 2011
Theoretical income taxes (50,436) 15,225
Tax effect of permanent differences (3,577) (133,952)
Taxes relating to prior periods (15,168) (8,536)
Other current taxes 12 253
Deferred taxes not recognized on tax loss for the year and other deferred taxes  38,116 82,064
Tax loss carryforwards utilized - -
Current and deferred income tax recognized in the financial statements, excluding IRAP (31,053) (44,946)
IRAP (current and deferred) - 1,145
Income taxes reported in the income statement (current and deferred income taxes) (31,053) (43,801)

Theoretical income taxes are calculated by applying the IRES tax rate (27.5% for 2012 and 2011) to the result before taxes.

The permanent differences referred to above include, among other things, the tax effect of non-taxable income amounting to €275,035 thousand in 2012 (€198,735 thousand in 2011) and of non-deductible costs amounting to €271,458 thousand in 2012 (€64,783 thousand in 2011). In particular, for 2012 the tax effect of non-taxable income was principally attributable to dividends (€269,217 thousand vs. €101,408 thousand in 2011) and impairment reversals on investments (€5,799 thousand vs. €96,815 thousand in 2011). Non-deductible costs principally relate to impairment losses on investments whose tax effect was €270,591 thousand (€53,515 thousand in 2011).

A breakdown of deferred tax liabilities, net of deferred tax assets, is provided in the following table:

(€ thousand) 31 December 2011 Recognized in incomestatement Charged to equity 31 December 2012
Deferred tax assets arising from:        
- Taxed provisions and other minor differences 30,095 (1,160) - 28,935
Total deferred tax assets 30,095 (1,160) - 28,935
Deferred tax liabilities arising from:         
- Measurement of construction contracts by the percentage completion method (48,357) 38 - (48,319)
- Others (784) (143) - (927)
Total deferred tax liabilities  (49,141) (105) - (49,246)
Theoretical tax benefit arising from tax loss carryforwards  138,898 77,662 - 216,560
Adjustments for assets whose recoverability is not probable  (127,997) (80,448) - (208,445)
Total deferred tax liabilities, net of deferred tax assets (8,145) (4,051) - (12,196)

Determination of deferred tax assets is based on an analysis of the existence of the conditions for their future realization, using updated plans and related tax aspects. As a consequence, the total theoretical future tax benefit arising from deductible temporary differences (€28,935 thousand at 31 December 2012 and €30,095 thousand at 31 December 2011) and tax loss carryforwards (€216,560 thousand at 31 December 2012 and €138,898 thousand at 31December 2011) was reduced by €208,445 thousand at 31 December 2012 (€127,997 thousand at 31December2011).

Total temporary differences (deductible and taxable) and tax losses at 31 December 2012 and amounts for which deferred tax assets have not been recognized, broken down by year of expiry, are as follows:

  Year of expiry
(€ thousand) Total at
31 December
2012
2013 2014 2015 2016 Beyond 2016 Non-expiring/
undeterminable
Temporary differences and tax losses relating to IRES:              
-Deductible temporary differences 105,216 22,416 50,040 687 - 32,073 -
-Taxable temporary differences (149,458) (82,706) (63,402) - - (3,350) -
-Tax losses 787,492 - - - - - 787,492
-Temporary differences and tax losses for which deferred tax assets have not been recognized (757,980) - - - - (29,512) (728,468)
Temporary differences and tax losses subject to national taxation (14,730) (60,290) (13,362) 687 - (789) 59,024
Temporary differences relating to IRAP:              
-Deductible temporary differences - - - - - - -
-Taxable temporary differences (146,225) (82,823) (63,402) - - - -
Temporary differences and tax losses subject to local taxation (146,225) (82,823) (63,402) - - - -

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