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Changes in accounting policies

Adjustment of previous year’s values in accordance with IAS 8 (correction of an error )

The parent company Deutsche EuroShop AG is an asset management holding company that has until now availed itself of the “extended trade tax deduction” (section 9 para. 1 sentence 2 Gewerbesteuergesetz (GewStG – Trade Tax Act)). Because this approach was accepted by the tax authorities for many years, Deutsche EuroShop AG had no reason until the end of February 2011 to doubt that these deductions would also be possible in the future.

However, this was changed by a ruling by the German Federal Fiscal Court (BFH) on 19 October 2010 published on the BFH’s website on 23 February 2011. It could no longer be assumed that this trade tax deduction would be possible in the future. The announcement coincided with the publication of provisional annual results on 24 February 2011. In view of the complex Group structures, reliable figures on the amount of deferred tax liabilities to be created were not available by the date of presentation. Given the circumstances, it was not possible to incorporate the information into the Company’s annual financial statements. Under IAS 8.41 et seq., that represents an error that must be retroactively corrected.

The previous year’s figures as at 31 December 2010 have been adjusted in the annual financial statements based on the assumption that the expanded trade tax deduction will no longer apply. The impact on the published statements is explained below. It was decided not to present the balance sheet amounts as at 1 January 2010, as the changes relate solely to the reporting date of 31 December 2010.

Deferred tax liabilities are to be created on the accumulated undisclosed reserves to account for temporary differences in measurements arising particularly from the measurement of market value of properties in accordance with IAS 40 versus the respective tax accounting approach. In the consolidated financial statements as at 31 December 2010, only deferred corporation taxes of € 105.2 million were so far recognised for this purpose, taking into account any deferred tax assets on loss carryforwards that could be offset.

Provisions recognised in profit and loss have now been created for the deferred trade tax based on the measurement differences in previous years (€ 87.5 million) and for trade tax to be paid in the future on the current earnings for the time period in question (€ 2.1 million). Provisions of € 3.7 million were recognised directly in equity.

The impact on the balance sheet, consolidated profit, NAV and FFO can be taken from the table below:

Bilanz

in € thousand	31 Dec 2010 before adjustment	IAS 8 adjustment	31 Dec 2010 after adjustment
Equity (retained earnings)	1,249,652	-85,915	1.1 63,737
Deferred taxes	101,052	83,778	1 84,830
Tax liabilities	450	2,137	2,587
Total assets	2,963,576	0	2,963,576

Gewinn- und Verlustrechnung
Steuern vom Einkommen und Ertrag

in € thousand	2010 before adjustment	IAS 8 adjustment	2010 after adjustment
Current tax expense	-316	-2,137	-2,453
Deferred tax liabilities – domestic companies	-11889	-87,494	-99,383
Deferred tax liabilities – foreign companies	-2,975	0	-2,975
Total	-15,180	-89,631	-104,811

Konzernergebnis

in € thousand and per share	2010 before adjustment	Per share before adjustment	IAS 8 adjustment	2010 after adjustment	Per share after adjustment
Tax expense up to 2009	0		-77,377	-77,377	-1.70 €
Measurement gains/losses	27,691	0.61 €	-2,952	24,739	0.54 €
Current profit	54,126	1.19 €	-9,302	44,824	0.98 €
Consolidated profit	81,817	1.80 €	-89,631	-7,814	-0.17 €

Net Asset Value (NAV)

in € thousand and per share	31 Dec 2010 before adjustment	Per share before adjustment	IAS 8 adjustment	31 Dec 2010 after adjustment	Per share after adjustment
Equity	1,249,652	24.20 €	-85,915	1.1 63,737	22.54 €
Deferred taxes	101,052	1.96 €	83,778	1 84,830	3.58 €
Total	1,350,704	26.16 €	-2,137	1,348,567	26.12 €

Funds from Operations (FFO)

in € thousand and per share	31 Dec 2010 before adjustment	IAS 8 adjustment	31 Dec 2010 after adjustment
Consolidated profit	81,817	-89,631	-7,814
Measurement gains/losses for equity accounted-companies	122		122
Measurement gains/losses	-33,129		-33,129
Deferred taxes	14,864	87,494	1 02,358
FFO	63,674	-2,137	61,537
FFO per share	1.40 €	-0.05 €	1.35 €

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