27 Income Taxes

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adidas AG and its German subsidiaries are subject to German corporate and trade taxes.

For the years ending December 31, 2007 and 2006, the statutory corporate income tax rate of 25 % plus a surcharge of 5.5 % thereon is applied to earnings. The municipal trade tax is approximately 15 % of taxable income, which is deductible in the determination of income for corporation tax purposes. The tax rate reduction due to the German Tax Reform 2008 was taken into account for the calculation of the deferred tax assets and liabilities of the German companies in 2007.

For non-German companies, deferred taxes are calculated based on tax rates that have been enacted or substantively enacted by the closing date.

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are offset if they relate to the same fiscal authority. The following deferred tax assets and liabilities, determined after appropriate offsetting, are presented on the balance sheet:

Deferred Tax Assets/Liabilities

€ in millions

	Dec. 31 2007	Dec. 31 2006

Deferred tax assets	315	332
Deferred tax liabilities	(450)	(522)
Deferred tax assets, net	(135)	(190)

The movements of deferred taxes are as follows:

Movement of Deferred Taxes

€ in millions

	2007	2006

Deferred tax assets, net as at January 1	(190)	153
Deferred tax (expense) / income	26	(14)
Change in consolidated companies 1)	—	(347)
Change in deferred taxes attributable to effective portion of qualifying hedging instruments recorded in equity see Note 23	11	2
Currency translation differences	25	17
Change in deferred taxes attributable to actuarial gains and losses recorded in equity see Note 18	(7)	(1)
Deferred tax assets, net as at December 31	(135)	(190)

1)	Relates to the acquisition of Reebok International Ltd. (USA) and its subsidiaries for the year ending December 31, 2006. . see Note 4

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