XML 63 R28.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income taxes
 12 Months Ended
Dec. 31, 2012
Income taxes [Abstract]  
Income taxes

19. Income taxes

The components of the provision for income taxes are as follows:

 

                         

 

Year ended December 31

(in thousands)

   2012
EUR		    

2011

EUR

    

2010

EUR

  

 

  
       

Current tax

     (79,255)       (129,127)       (180,613)  

Deferred tax

     74,993       (52,548)       (40,090)  

 

  

Provision for income taxes

     (4,262)       (181,675)       (220,703)  
       
                         

The Dutch statutory tax rate was 25.0 percent in 2012 and 2011 and 25.5 percent in 2010. Tax amounts in other jurisdictions are calculated at the rates prevailing in the relevant jurisdictions.

 

The reconciliation of the provision for income taxes shown in the consolidated statements of operations, based on the effective tax rate, with the Dutch statutory tax rate, is as follows:

 

 

                                                 

 

Year ended December 31

(in thousands)

  

2012

EUR

     %    

2011

EUR

     %    

2010

EUR

     %  

 

  
             

Income before income taxes

     1,150,578       100.0       1,648,635       100.0       1,242,523       100.0  

Income tax provision based on ASML’s domestic rate

     (287,644)       25.0       (412,159)       25.0       (316,843)       25.5  

Effects of tax rates in foreign jurisdictions

     9,786       (0.9)       20,663       (1.3)       15,878       (1.3)  

Adjustments in respect of tax exempt income

     23,532       (2.0)       19,134       (1.2)       19,987       (1.6)  

Adjustments in respect of changes in the applicable tax rate 1

     -       -       -       -       (569)       0.1  

Adjustments in respect of tax incentives

     143,160       (12.4)       180,096       (10.9)       66,881       (5.4)  

Adjustments in respect of prior years’ current taxes

     18,275       (1.6)       9,097       (0.6)       25,648       (2.1)  

Movements in the liability for unrecognized tax benefits

     95,465       (8.3)       6,634       (0.4)       (28,796)       2.3  

Other credits and non-taxable items

     (6,836)       0.6       (5,140)       0.4       (2,889)       0.3  

 

  

Provision for income taxes

     (4,262)       0.4       (181,675)       11.0       (220,703)       17.8  
             
                                                 

 

1 At the end of 2010, the Dutch government enacted a tax rate reduction from 25.5 percent in 2010 to 25.0 percent in 2011.

Income tax provision based on ASML’s domestic rate

The provision for income taxes based on ASML’s domestic rate is based on the Dutch statutory income tax rate and reflects the provision for income taxes that would have been applicable if all of our income was derived from our Dutch operations and there were no permanent book tax differences and no other tax facilities.

Effects of tax rates in foreign jurisdictions

A portion of ASML’s results are realized in countries other than the Netherlands where different tax rates are applicable.

Adjustments in respect of tax exempt income

In certain jurisdictions part of the income generated is tax exempted.

Adjustments in respect of tax incentives

Adjustments in respect of tax incentives relate to reduced tax rates in several jurisdictions, mainly consisting of the agreement with the Dutch fiscal authorities of December 2010 regarding the application of the “Innovation Box”, and the research and development deduction (“RDA”). The Innovation box is a facility under Dutch corporate tax law pursuant to which income associated with R&D is partially exempted from taxation. This tax ruling has retroactive effect to January 1, 2007 and is valid through December 31, 2016. Thereafter the validity of this ruling may be extended or this ruling may be adapted depending on a possible change in law or change of circumstances.

Adjustments in respect of prior years’ current taxes

In 2012, we recognized a tax benefit of EUR 18.3 million or 1.6 percent of income before taxes mainly attributable to the application of tax exemptions for prior years, which had a favorable effect on the effective tax rate for 2012.

In 2010, we recognized a tax benefit of EUR 25.6 million or 2.1 percent of income before income taxes mainly attributable to the application of the Innovation Box for prior years, which had a favorable effect on the effective tax rate for 2010 (EUR 37.5 million including interest or 3.0 percent).

Movements in the liability for unrecognized tax benefits

In 2012, ASML recognized a tax benefit of EUR 95.5 million or 8.3 percent of income before income taxes mainly as a result of the successful conclusion of tax audits in different jurisdictions (EUR 92.5 million).

Other credits and non-taxable items

Other credits and non-taxable items reflect the impact on statutory rates of permanent non-taxable items such as non-deductible taxes, non-deductible interest expense, and non-deductible meals and entertainment, as well as the impact of (the reversal of) various tax credits on our provision for income taxes.

 

Income taxes recognized directly in shareholders’ equity

Income taxes recognized directly in shareholders’ equity (including other comprehensive income) are as follows:

 

                         

 

Income tax recognized in shareholders’ equity

(in thousands)

   2012
EUR		     2011
EUR		     2010
EUR		  

 

  

Current tax

                        

Derivative financial instruments1

     (1,066)       6,257       8,262  

Tax (benefit) deficit from share-based payments

     (2,116)       11       (106)  

 

  

Total income tax recognized in shareholders’ equity

     (3,182)       6,268       8,156  
       
                         

 

1 Recognized directly in Other Comprehensive Income.

Liability for unrecognized tax benefits and deferred taxes

The deferred tax position and liability for unrecognized tax benefits recorded on the consolidated balance sheets are as follows:

 

 

                 

 

As of December 31

(in thousands)

  

2012

EUR

    

2011

EUR

  

 

  

Liability for unrecognized tax benefits

     (59,967)       (155,432)  

Deferred tax position

     114,527       137,946  

 

  

Total

     54,560       (17,486)  
     
                 

Liability for unrecognized tax benefits

The calculation of our liability for unrecognized tax benefits involves uncertainties in the application of complex tax laws. Our estimate for the potential outcome of any uncertain tax issue is highly judgmental. We believe that we have adequately provided for uncertain tax positions. However, settlement of these uncertain tax positions in a manner inconsistent with our expectations could have a material impact on our consolidated financial statements.

Consistent with the provisions of ASC 740, as of December 31, 2012, ASML has a liability for unrecognized tax benefits of EUR 60.0 million (2011: EUR 155.4 million) which is classified as non-current deferred and other tax liabilities. The total liability for unrecognized tax benefits, if reversed, would have a favorable effect on our effective tax rate.

Expected interest and penalties related to income tax liabilities have been accrued for and are included in the liability for unrecognized tax benefits and in the provision for income taxes. The balance of accrued interest and penalties recorded in the consolidated balance sheets as per December 31, 2012 amounted to EUR 21.4 million (2011: EUR 24.5 million). Accrued interest and penalties recorded in the consolidated statement of operations of 2012 amounted to a tax benefit of EUR 3.1 million (2011: tax benefit of EUR 9.3 million; 2010: tax charge of EUR 5.3 million).

A reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits is as follows:

 

 

                 

 

As of December 31

(in thousands)

  

2012

EUR

    

2011

EUR

  

 

  
     

Balance, January 1

     155,432       162,066  

Gross increases – tax positions in prior period

     4,297       11,121  

Gross decreases – tax positions in prior period

     (92,521)       (24,566)  

Gross increases – tax positions in current period

     3,255       21,258  

Settlements

     -       (10,403)  

Lapse of statute of limitations

     (10,496)       (4,044)  

 

  

Total liability for unrecognized tax benefits

     59,967       155,432  
     
                 

For 2012 the gross decreases in tax positions in prior period mainly relates to the release of tax positions after successful conclusion of tax audits in different jurisdictions.

We estimate that the total liability for unrecognized tax benefits will decrease by EUR 3.0 million within the next 12 months. The estimated changes to the liability for unrecognized tax benefits within the next 12 months are mainly due to expected settlements with tax authorities.

We are subject to tax audits in our major tax jurisdictions for years from and including 2007 onwards in the Netherlands, for years from and including 2006 onwards in Hong Kong, and for years from and including 2001 onwards in the United States. In the course of such audits, local tax authorities may challenge the positions taken by us. For the years 2006 through 2010, the partial exemption of taxable profits is subject to tax audits in certain tax jurisdictions.

Deferred tax position

The changes in deferred income tax assets and liabilities consist of the following elements:

 

 

                 

 

Changes in deferred tax assets and liabilities

(in thousands)

  

2012

EUR

    

2011

EUR

  

 

  

Balance, January 1

     137,946       193,587  

Consolidated statements of operations

     (20,242)       (59,539)  

Effect of changes in exchange rates

     (3,177)       3,898  

 

  

Balance, December 31

     114,527       137,946  
     
                 

The deferred tax position is classified in the consolidated balance sheets as follows:

 

 

                 

 

As of December 31

(in thousands)

  

2012

EUR

    

2011

EUR

  

 

  
     

Deferred tax assets – current

     103,695       120,720  

Deferred tax assets – non-current

     39,443       38,735  

Total deferred tax assets

     143,138       159,455  

Deferred tax liabilities – current

     (271)       (214)  

Deferred tax liabilities – non-current

     (28,340)       (21,295)  

Total deferred tax liabilities

     (28,611)       (21,509)  

 

  

Total

     114,527       137,946  
     
                 

The composition of total deferred tax assets and liabilities in the consolidated financial statements is as follows:

 

 

                                 

 

Deferred tax assets composition

of temporary

differences

(in thousands)

  

January 1,
2012

EUR

     Consolidated
statements of
operations
EUR		    

 

Effect of
changes
in exchange
rates

EUR

    

December 31,
2012

EUR

  

 

  

Capitalized research and development expenditures

     34,374       (6,465)       (506)       27,403  

Inventories

     35,820       (7,351)       (302)       28,167  

Deferred revenue

     23,892       (3,083)       (237)       20,572  

Provisions

     14,515       7,296       (283)       21,528  

Installation and warranty reserve

     8,772       (1,508)       (113)       7,151  

Tax effect carry-forward losses

     7,735       (2,219)       41       5,557  

Fixed assets

     6,495       1,454       (151)       7,798  

Restructuring and impairment

     5,146       (733)       (77)       4,336  

Alternative minimum tax credits1

     5,028       229       (30)       5,227  

Bilateral advance pricing agreement 2

     1,426       (1,278)       -       148  

Share-based payments

     950       516       (33)       1,433  

Other temporary differences

     15,302       140       (1,624)       13,818  

 

  

Total

     159,455       (13,002)       (3,315)       143,138  
         
                                 

 

1 Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses used.
2 The Bilateral advance pricing agreement relates to intellectual property which is capitalized from a tax perspective resulting in a temporary difference.

 

 

                                 

 

Deferred tax liabilities composition

of temporary

differences

(in thousands)

  

January 1,
2012

EUR

     Consolidated
statements of
operations
EUR		    

 

Effect of
changes
in exchange
rates

EUR

    

December 31,
2012

EUR

  

 

  

Fixed assets

     (19,108)       (6,965)       183       (25,890)  

Borrowing costs

     (1,554)       (404)       -       (1,958)  

Other temporary differences

     (847)       129       (45)       (763)  

 

  

Total

     (21,509)       (7,240)       138       (28,611)  
         
                                 

 

                                 

 

Deferred tax assets composition

of temporary

differences

(in thousands)

  

January 1,
2011

EUR

     Consolidated
statements of
operations
EUR		    

 

Effect of
changes
in exchange
rates

EUR

    

December 31,
2011

EUR

  

 

  

Capitalized research and development expenditures

     27,239       5,501       1,634       34,374  

Inventories

     71,124       (35,813)       509       35,820  

Deferred revenue

     10,890       11,746       1,256       23,892  

Provisions

     21,828       (7,463)       150       14,515  

Installation and warranty reserve

     8,092       98       582       8,772  

Tax effect carry-forward losses

     27,756       (18,695)       (1,326)       7,735  

Fixed assets

     4,386       1,872       237       6,495  

Restructuring and impairment

     6,074       (1,063)       135       5,146  

Alternative minimum tax credits1

     4,658       112       258       5,028  

Bilateral advance pricing agreement2

     7,993       (6,583)       16       1,426  

Share-based payments

     1,678       (808)       80       950  

Other temporary differences

     13,719       936       647       15,302  

 

  

Total

     205,437       (50,160)       4,178       159,455  
         
                                 

 

1 Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses used.
2 The Bilateral advance pricing agreement relates to intellectual property which is capitalized from a tax perspective resulting in a temporary difference.

 

 

                                 

 

Deferred tax liabilities composition

of temporary

differences

(in thousands)

  

January 1,
2011

EUR

     Consolidated
statements of
operations
EUR		    

 

Effect of
changes
in exchange
rates

EUR

    

December 31,
2011

EUR

  

 

  

Fixed assets

     (9,661)       (9,175)       (272)       (19,108)  

Borrowing costs

     (1,231)       (323)       -       (1,554)  

Other temporary differences

     (958)       119       (8)       (847)  

 

  

Total

     (11,850)       (9,379)       (280)       (21,509)  
         
                                 

Tax effect carry-forward losses

Deferred tax assets from carry-forward losses result predominantly from net operating loss carry-forwards incurred in the United States prior to 2011.

Net operating losses qualified as tax losses under United States federal tax laws were fully utilized to offset taxable income during 2012. Net operating losses qualified as tax losses under United States state tax laws incurred by United States group companies can in general be offset against future profits realized in the 5 to 20 years following the year in which the losses are incurred. The period of net operating loss carry forward for United States state tax purposes depends on the state in which the tax loss arose. Our ability to use United States state tax loss carry forwards in existence at December 31, 2012, is subject to varying state statutes (providing for periods of between 5 and 20 years) and valuation allowances have been set up for state carry forward losses that are not expected to be realized before they expire. The total amount of losses carried forward under United States state tax laws as of December 31, 2012, is EUR 503.7 million tax basis or EUR 5.6 million tax effect.