38. Income tax for the period

HVB Group new	2006 € millions	2005 € millions
Current taxes	(199)	(249)
Deferred taxes	324	235
Total	125	(14)

The income arising from deferred taxes is mainly attributable to valuation adjustments of deferred tax assets.

The differences between computed income tax for the period and recognised income tax for the period are shown in the following reconciliation:

€ millions	2006 HVB Group new	2005 Full HVB Group
Profit before tax	1,618	1,299
Applicable tax rate	26.4%	26.4%
Computed income taxes for the period	(427)	(343)
Tax effects
arising from prior years and changes in tax rates	1	35
arising from foreign income	31	95
arising from non-taxable income	307	211
arising from different tax laws	133	139
arising from non-deductible expenses	(102)	(97)
arising from valuation adjustments and the non-recognition of deferred taxes	182	(299)
arising from amortisation of goodwill	0	0
arising from other differences	0	(3)
Recognised income taxes for the period	125	(262)

The tax rate applicable in the year under review remained unchanged at 26.4%. It comprises the current rate of corporate income tax in Germany of 25.0% and the solidarity surcharge of 5.5% of corporate income tax.

The effect on tax of foreign income results from different tax rates applicable in other countries.

The item tax effects arising from different tax laws comprises primarily current and deferred trade tax in Germany calculated using nonuniform tax rates, and a reduction in corporate income tax and the solidarity surcharge resulting from the deductibility of municipal trade tax. This item also includes the income from the capitalisation of the discounted corporate income tax credit.

The item effects on taxes arising from valuation adjustments and the non-recognition of deferred taxes contains the effects arising from the reduction and increase of deferred tax assets compliant with IAS 12.56 and IAS 12.37. In the previous year, it also included the effects due to the non-recognition of deferred tax assets due to tax losses carried forward and temporary differences in the current financial year. In addition, this item includes the effects of temporary differences associated with subsidiaries for which, compliant with IAS 12.39 and IAS 12.44, no deferred tax assets or liabilities may be recognised.

The deferred tax assets and liabilities are broken down as follows:

€ millions	2006 HVB Group new	2005 Full HVB Group
Deferred tax liabilities
Placements with, and loans advances to, other banks and customers, incl. provisions for losses on loans and advances	84	79
Assets/liabilities held for trading purposes	103	221
Investments	205	601
Property, plant and equipment/intangible assets	77	86
Other assets/liabilities	292	261
Deposits from other banks/amounts owed to other depositors	0	6
Other	55	74
Recognised deferred tax liabilities	816	1,328
Deferred tax assets
Assets/liabilities held for trading purposes	367	588
Investments	177	262
Property, plant and equipment/intangible assets	60	53
Provisions	456	845
Other assets/liabilities	372	432
Placements with, and loans advances to, other banks and customers, incl. provisions for losses on loans and advances	132	95
Losses carried forward	579	556
Other	362	236
Recognised deferred tax assets	2,505	3,067

German corporations are generally charged a definitive corporate income tax rate of 25.0% (previous year: 25.0%), irrespective of whether the earnings are distributed or not. Deferred taxes were measured for the Bank’s domestic companies using a uniform rate of corporate income tax, including the solidarity surcharge, of 26.4%, and a rate of municipal trade tax dependent on the respective multiplier. Given the deductibility of municipal trade tax when calculating corporate income tax, this results in an unchanged total assessment rate for deferred taxes of 39.8% at HVB AG.

The available-for-sale reserve was reduced by €42 million due to deferred taxes in the year under review. Deferred tax assets of €124 million were offset against the hedge reserve in the current year. On account of the option set forth in IAS 19.93 A, deferred tax assets of €149 million were directly offset from shareholders’ equity. In each case, the deferred tax items offset directly against reserves are amounts before adjustment of minority interest.

Compliant with IAS 12, no deferred tax assets have been recognised for tax losses of the new HVB Group carried forward totalling €5,142 million (2005 HVB Group new: €5,290 million) and deductible temporary differences of €1,130 million (2005 HVB Group new: €1,104 million).