Annual report and accounts 2008

Notes contents

Notes to the consolidated financial statements
As of December 31, 2008, 2007 and 2006

13.Taxes

Group taxes are mainly comprised of income taxes of subsidiaries and joint ventures. As a Luxembourg commercial company, the Company is subject to all taxes applicable to a Luxembourg Société Anonyme. Due to losses incurred and brought forward, no taxes based on Luxembourg-only income have been computed for 2008, 2007 or 2006.

The effective tax rate on continuing operations is approximately 39% (2007: 16%, 2006: 32%). Currently Millicom operations are in jurisdictions with income tax rates of 10% to 40% (2007 and 2006: 10% to 40%).

The reconciliation between the weighted average statutory tax rate and the effective average tax rate is as follows:

• (i) Figures for 2007 and 2006 have been adjusted, excluding Millicom operation in Sierra Leone.
• (ii) The weighted average statutory tax rate has been determined by dividing the aggregate statutory tax charge of each subsidiary and joint venture, which was obtained by applying the statutory tax rate to the profit or loss before tax, by the aggregate profit before tax.
• (iii) Unrecognised current year tax losses mainly consist of tax losses at the Company level and tax losses recorded in the Group’s operations in the Democratic Republic of Congo and Colombia (2007: Democratic Republic of Congo; 2006: Colombia and the Democratic Republic of Congo).
• (iv) The variation in the effective tax rate is mainly due to the recognition of deferred tax assets for tax loss carry forwards in Colombia in 2007 and its impairment in 2008 (see below).

In October 2006, the Group acquired Colombia Móvil (see note 4). At the time of acquisition, Colombia Móvil had tax loss carry forwards. When completing the purchase price allocation, Millicom assessed that it was not probable that these tax loss carry-forwards would be used. Thus no deferred tax asset was recognized on acquisition. Given the 2007 actual results of Colombia Móvil and its forecasted performance, Colombia Móvil was expected to be profitable in a foreseeable future. Accordingly, an amount of $86 million was recorded in deferred tax assets corresponding to $39 million related to tax losses after the acquisition and $47 million related to tax losses prior to the acquisition. Management estimated that these tax losses were to be used against future taxable profit. As part of these losses existed at the time of acquisition some of the goodwill recorded at acquisition was reversed resulting in an expense of $23 million in 2007 recorded under the caption “other operating expenses”.

As the business conditions have been negatively impacted by the change in the interconnect rates, Colombia performance deteriorated since the first recognition of deferred tax assets. Therefore, it was no longer considered probable that Millicom could utilize these fiscal loss carryforwards in the near future. Therefore the previously recognized deferred tax asset was impaired through the profit and loss statement.

The charge for income taxes from continuing operations is shown in the following table and recognises that revenue and expense items may affect the financial statements and tax returns in different periods (temporary differences):

• (i)Figures for 2007 and 2006 have been adjusted, excluding Millicom operation in Sierra Leone.

The tax effects of significant items comprising the Group's net deferred income tax asset and liability as of December 31, 2008 and 2007 are as follows:

• (i)Figures for 2007 have been adjusted, excluding Millicom operation in Sierra Leone.

Deferred income tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

No deferred tax liability was recognised in respect of $2,022 million (2007:$1,095 million) of unremitted earnings of subsidiaries, joint ventures and associates because the Group was in a position to control the timing of the reversal of the temporary difference and it was unlikely that such differences would reverse in a foreseeable future. Furthermore, it was not practicable to estimate the amount of unrecognized deferred tax liabilities in respect of these unremitted earnings.

Unrecognised net operating losses and other tax loss carryforwards relating to continuing operations amounted to $610 million as at December 31, 2008 (2007: $120 million, 2006: $295 million) with expiry periods of between 1 and 6 years except for $256 million where the losses do not expire. In addition the Company has unrecognized net operating losses of $1,823 million (2007: $1,940 million) which do not expire.