The German Tax Reform Act stipulated that profits on the sale of shareholdings in German corporations were exempt from tax beginning January 1, 2002. For our consolidated financial statements for 2000, this meant that the respective deferred tax liability formed in connection with the unrealized gains from equity securities available for sale accumulated in other comprehensive income (OCI) had to be released as a credit in the tax line of the income statement although the gains were still unrealized since the securities were not yet sold.
The release of the deferred tax liability through the income statement did not affect the offset amount in OCI. It remains fixed in the amount determined at the date of the release of the deferred tax liability until such time as the securities are sold.
The following table presents the level of unrealized gains and related effects for available for sale equity securities of DB Investor, which holds most of our industrial holdings.
| in € bn. | 2003 | 2002 | 2001 | 2000 | 1999 |
| Market value | 6.3 | 5.3 | 14.1 | 17.5 | 21.8 |
| Cost | 4.6 | 5 | 5.7 | 5.6 | 5.8 |
| Unrealized gains in Other Comprehensive | 1.7 | 0.3 | 8.4 | 11.9 | 16 |
| Income | |||||
| Less: deferred tax relating to 1999 and 2000 tax rate changes in Germany | 2.8 | 2.9 | 5.5 | 6.5 | 8.6 |
| Other Comprehensive Income (Loss), net | (1.1) | (2.6) | 2.9 | 5.4 | 7.4 |
The accounting for income tax rate changes may result in significant impacts on our results of operations in periods in which we sell these securities as illustrated in 2003, 2002 and 2001 when we sold portions of our industrial holdings. The gains resulting from most of these sales were not subject to tax. However, we recognized tax expenses due to reversals of amounts fixed at the time of the change in tax rates amounting to € 215 million in 2003, € 2.8 billion in 2002 and € 995 million in 2001.
The only tax payable will be on 5% of any gain as a result of the 2004 Tax Reform Act which was enacted in December 2003. Under the Act, effective starting in 2004, corporations will effectively become subject to tax on 5% of capital gains from the disposal of foreign and domestic shareholdings irrespectively of holding percentage and holding period; losses from a shareholding disposal continue to be non-tax deductible.
Neither the initial release of the deferred tax liability nor the unrealized gains and losses from securities available for sale are included in regulatory core capital. The entire procedure is a U.S. GAAP -specific accounting requirement. We believe that the economic effects of the tax rate changes are not appropriately reflected in the individual periods up to and including the period of the sale.
For more information on this accounting method, see the respective section of our Form 20-F filed March 25, 2004.