Income taxes

The tax expense on income before tax amounted to EUR 256 million (2007: EUR 582 million, 2006: EUR 223 million).

The components of income before taxes and income tax expense are as follows:

Philips’ operations are subject to income taxes in various foreign jurisdictions. The statutory income tax rates vary from 10.0% to 40.7%, which causes a difference between the weighted average statutory income tax rate and the Netherlands’ statutory income tax rate of 25.5%. (2007: 25.5%; 2006: 29.6%).

A reconciliation of the weighted average statutory income tax rate to the effective income tax rate is as follows:

The weighted average statutory income tax rate decreased in 2008 compared to 2007 due to a significant change in country mix of income tax rates, due to losses in countries with higher income tax rates and profits in countries with relatively lower income tax rates, combined with a lower income before tax.

The effective income tax rate is higher than the weighted average statutory income tax rate in 2008, mainly due to new losses carried forward not expected to be realized, non-tax deductible impairment charges, and income tax expenses due to tax provisions for uncertain tax positions, which were partly offset by non-taxable gains on the sale of securities and other non-taxable income.

Deferred tax assets and liabilities

Net deferred tax assets relate to the following balance sheet captions, and tax loss carryforwards (including tax credit carryforwards), of which the movements during the years 2008 and 2007 respectively are as follows:

Other provisions include a EUR 251 million deferred tax asset position of legal claims for asbestos.

The column 'other includes foreign currency translation differences of EUR 56 million (assets) which were recognized in equity and balance sheet changes amounting to EUR 14 million (liabilities).

Deferred tax assets and liabilities relate to the following balance sheet captions, as follows:

In assessing the realizability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income in the countries where the net operating losses were incurred. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes as at December 31, 2008, it is probable that the Company will realize all or some portion of the recognized benefits of these deductible differences.

At December 31, 2008, operating loss carryforwards expire as follows:

The Company also has tax credit carryforwards of EUR 107 million, which are available to offset future tax, if any, and which expire as follows:

At December 31, 2008, operating loss and tax credit carryforwards for which no deferred tax assets have been recognized in the balance sheet, expire as follows:

Classification of the income tax payable and receivable is as follows: