[12] Income tax Audited

The tax expense consists of corporation and trade taxes for the companies domiciled in Germany as well as comparable income taxes for foreign companies. As a result of changes in tax rates at individual companies, a total deferred tax expense of € 1.7 million was recorded (2007: € 21.3 million). Taxes on exceptional items relate mainly to write-downs of intangible assets and financial assets as well as to restructuring measures. Deferred taxes on exceptional items in 2007 mainly comprise deferred taxes resulting from the remeasurement of inventories within the scope of the purchase price allocation owing to the acquisition of the Serono companies in January 2007.

The reconciliation between deferred tax assets and liabilities shown in the balance sheet and deferred taxes in the income statement is presented below:

Tax loss carryforwards are structured as follows:

The decrease in tax loss carryforwards compared with the previous year is mainly the result of the positive business development of the relevant Group companies. Deferred tax assets are recognized for tax loss and interest carryforwards only if realization of the related tax benefit is probable in the foreseeable future. Due to overall economic development, existing deferred tax assets of € 40.2 million were written down at year-end.

The vast majority of the loss carryforwards either have no expiry date or can be carried forward for up to 20 years. The interest carryforward results from the German earnings stripping rule and has no expiry date. Deferred tax assets on interest carryforwards were not recognized. The theoretically possible deferred tax asset amounts to € 10.0 million. In 2008, the income tax burden was reduced by € 7.5 million due to the utilization of tax loss carryforwards and tax credits from prior years for which no deferred tax asset had been recognized in prior periods (2007: € 8.3 million).

The tax loss carryforwards accumulated in Germany for corporation tax amount to € 57.6 million (2007: € 54.5 million) and to € 64.0 million (2007: € 71.9 million) for trade tax. The increase in additional theoretically possible deferred tax assets for non-German Group companies to € 52.7 million (2007: € 30.2 million) results mainly from the write-down of deferred tax assets for capitalized tax-loss carryforwards.

Deferred tax assets and liabilities correspond to the following balance sheet items:

Deferred tax liabilities of € 23.0 million (2007: € 10.9 million) were set up for temporary timing differences for interests in subsidiaries. These relate to planned dividend payments. No deferred tax liabilities were recognized for other temporary differences since the reversal of these differences is not foreseeable. Deferred tax assets of € 472.7 million (2007: € 400.3 million) were recognized for other temporary timing differences for interests in subsidiaries.

The following table presents a tax reconciliation of the theoretical tax rate to consolidated profit. The theoretical tax rate is determined by applying the statutory tax rates of the German and foreign companies in proportion to their contribution to consolidated profit. The change in comparison with 2007 results from the change in the consolidated contributions in relation to local tax rates.