Notes to the consolidated financial statements

Tax matters

Consolidated tax group

Grupo Ferrovial, S.A. has been taxed under the tax consolidation system since 1993. The companies that form part of the tax consolidation group in 2007, together with Grupo Ferrovial, S.A., are indicated in Exhibit I. The companies Cintra, S.A., Inversora de Autopistas del Sur, S.L. and Inversora de Autopistas de Levante, S.L. are each the parent company of different tax groups.

Explanation of the effective tax rate

Tax rates

Income tax expense is calculated at the tax rates in force in each country: Spain: 32.5%; Portugal: 27.5%; Canada: 36.12%; United States: 40.5%; Chile: 17%; Poland: 19%; Ireland: 12.5%; Italy: 37.25%; and United Kingdom: 30%. In accordance with International Financial Reporting Standards and standard practices in Spain, tax on repatriated profits generated abroad is also recognised, to the extent that there are plans to repatriate profits within a reasonable period of time.

Effective tax rate

In 2006 and 2007, the Ferrovial Group recognised income tax expense of 171 million euro and a tax credit of 172 million euro, respectively.

The recognition of a tax credit of 172 million euro despite having posted income similar to the previous year is explained below: 

  • The Ferrovial Group has recognised in 2007 income tax expense the impact of the change of income tax rate on deferred tax assets and liabilities. This mainly relates to the UK tax rate, which has been reduced from 30% in 2007 to 28% as from 2008. The deferred tax assets and liabilities that are expected to be recovered as from 31 December 2007 have therefore been updated to the 28% rate, generating income of 206 million euro (126 million euro for the parent company).

  • The Ferrovial Group has also recognised in 2007 income tax expense of 11 million euro relating to the regularisation of prior-year income tax, and income of 67 million euro due to a change in the estimation of deferred taxes recoverable at December 2007.

If the combined impact of the two matters addressed above were removed, the Group would recognise income tax expense of 87 million euro in 2007, representing an effective tax rate of 13.08%. This effective rate is considerably lower than the tax rates in force in the countries in which the Group operates, for the following reasons:

  • Taxation of capital gains on the sale of the shares in Australian airports: The Group obtained gains of 633 million euro as a result of the sale of its interest in Sydney Airport and the sale of the BAA Group's minority interests in other Australian airports. These gains are subject to estimated total tax of 129 million euro, representing an effective tax rate of 20.4% and causing a significant reduction in the Group's overall effective rate.

  • Taxation of capital gains on the sale of the shares in Budapest Airport: The Group obtains a gain of 174 million euro as a result of the sale of the BAA Group's interest in Budapest Airport. This gain is due basically to fluctuations in the exchange rate of the euro against Hungary's official currency and is not subject to tax, which has also caused a significant reduction in the Group's overall effective tax rate.

Taking into consideration the above-mentioned effects, the reconciliation between profit before income tax and the tax credit recognised in 2007 is as follows:

 Profit before income tax and the tax credit

In view of the significance of the Group's activities in the United Kingdom and the United States, set out below is a reconciliation of profit before income tax and the tax credit recognised in 2007 by country:

 Profit before income tax and the tax credit recognised in 2007 by country

(a) For USA and Other countries, the weighted average tax rate has been used, this being the aggregate tax rate applied in each country, or state in the case of USA, in proportion to the result before tax generated in each case.

(b) Permanent differences relate mainly to tax adjustments arising from the sale of the airports.

(c) This relates to the application of the tax-loss carryforwards generated by 407 International Inc that were not previously recognised because this company has a policy of recognising deferred tax assets up to the amount of its deferred tax liabilities, in accordance with International Financial Reporting Standards.

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