[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, total deferred tax income of € 2.6 million was recorded (2008: € 1.7 million tax expense).

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 was 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.

Based on the tax planning data for subsequent fiscal years, deferred tax assets totaling € 16.1 million were recognized for tax loss carryforwards for individual companies of the Merck Group. The vast majority of the loss carryforwards either has 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 recognized, amounting to € 7.5 million. In 2009, the income tax burden was reduced by € 15.6 million (2008: € 7.5 million) due to the utilization of tax loss carryforwards and interest carryforwards from prior years for which no deferred tax asset had been recognized in prior periods.

The tax loss carryforwards accumulated in Germany for corporation tax amounted to € 73.8 million (2008: € 57.6 million) and to € 90.5 million (2008: € 64.0 million) for trade tax. The decline in additional theoretically possible deferred tax assets to € 27.6 million (2008: € 52.7 million) results mainly from the utilization of loss carryforwards without deferred tax assets and from the capitalization of deferred tax assets on tax loss carryforwards that were not recognized in previous periods.

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

Deferred tax liabilities of € 11.4 million (2008: € 23.0 million) were set up for temporary 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.

In addition to deferred tax assets on tax loss carryforwards, deferred tax assets of € 522.6 million (2008: € 472.7 million) were recognized for other temporary differences.

The following table presents the tax reconciliation from theoretical tax expense to tax expense before exceptional items and tax expense according to income statement. 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 2008 resulted from the change in the consolidated contributions in relation to local tax rates.