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8.
I
ncome taxes
The following is a reconciliation of income taxes, calculated at the French income tax rate, to the income tax benefit (expense) included
in the consolidated statements of operations for the years ended December 31:
2003 2002 2001
Income taxes at French rates
(2003 - 35.4% 2002 - 35.4% 2001 - 36.4%)
50,886 74,647 139,325
Research and development credit 6,104 6,098 14,058
Foreign tax (485) (2,119) (2,950)
Change in valuation allowance (16,347) (77,259) (138,796)
Other
(a)
(34,544) 273 22,436
Income tax benefit/(provision) 5,614 1,640 34,073
Income tax benefit/(provision)
Current (490) (2,270) 5,068
Deferred 6,104 3,910 29,005
Income tax benefit/(provision) 5,614 1,640 34,073
(a) Other includes rate differential as well as
p
ermanent differences.
The following table shows the significant components included in deferred income taxes as of December 31:
2003 2002
Assets:
Tax benefit of tax credits 24,398 20,065
Tax benefit of losses 302,380 333,946
Provisions and reserves 12,710 (40,719)
339,488 313,292
Valuation allowance (263,894) (247,547)
75,594 65,745
Liabilities:
Plant and equipment 28,084 22,477
Net deferred income tax assets 47,510 43,268
The deferred income tax assets are all receivable in cash from the French government within the next 3 years as of December 31, 2003 or
can be offset against taxes currently payable in that same period.
As of December 31, 2003, Nortel Networks S.A. had consolidated net operating loss carry forwards of approximately
747,359 which
will carry forward indefinitely and net capital loss carryforwards of
73,997 which expire in 2006 to 2013.
Nortel Networks S.A. and certain subsidiaries are currently subject to an examination by taxation authorities in France and have received
a preliminary notice of proposed assessment for a material amount. No amount has been included in the provision for income taxes for
this notice of proposed assessment as Nortel Networks S.A. believes that this proposed assessment is without merit. However, if this
matter is ultimately resolved unfavourably, it could have a material adverse effect on the consolidated financial position, results of
operations, cash flows or tax carryforward attributes of Nortel Networks S.A.