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4.6 Foreign currency transactions
The Company's functional currency is the euro. Therefore, transactions in currencies other than
the euro are deemed to be “foreign currency transactions” and are recognised by applying the
exchange rates prevailing at the date of the transaction.
At the end of each reporting period, monetary assets and liabilities denominated in foreign
currencies are translated to euros at the rates then prevailing. Any resulting gains or losses are
recognised directly in the income statement in the year inwhich they arise.
Monetary assets and liabilities carried at fair value that are denominated in foreign currencies are
translated at the exchange rates prevailing at the date when the fair value was determined. The
resulting gains or losses are recognised in equity or in profit or loss by applying the samemethods
as those used to recognise changes in fair value, as indicated inNote 4.4 on financial instruments.
4.7 Income tax
Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax
expense (deferred tax income).
The current income tax expense is the amount payable by the Company as a result of income tax
settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and
pre-payments, and tax loss carryforwards from prior years effectively offset in the current year
reduce the current income tax expense.
The deferred tax expense or income relates to the recognition and derecognition of deferred tax
assets and liabilities. These include temporary differences measured at the amount expected to be
payable or recoverable on differences between the carrying amounts of assets and liabilities and
their tax bases, and tax loss and tax credit carryforwards. These amounts aremeasured at the tax
rates that are expected to apply in the periodwhen the asset is realised or the liability is settled.
Deferred tax liabilities are recognised for all taxable temporary differences, except for those arising
from the initial recognition of goodwill or of other assets and liabilities in a transaction that is not a
business combination and affects neither accounting profit (loss) nor taxable profit (tax loss).
Deferred tax assets are recognised to the extent that it is considered probable that the Company
will have taxable profits in the future against which the deferred tax assets can be utilised.
Deferred tax assets and liabilities arising from transactions charged or credited directly to equity
are also recognised in equity.
The deferred tax assets recognised are reassessed at the end of each reporting period and the
appropriate adjustments are made to the extent that there are doubts as to their future
recoverability. Also, unrecognised deferred tax assets are reassessed at the end of each reporting
period and are recognised to the extent that it has become probable that they will be recovered
through future taxable profits.
In 2001 the Company began to be taxed on a consolidated basis with other Group companies (see
Note 18). In this connection, in calculating its income tax, the Company took into consideration
the corresponding Spanish Accounting and Audit Institute (ICAC) resolutions, establishing the
methods for the recognition of income tax at companies that file consolidated tax returns.
