TAXES ON INCOME

12 Months Ended

Dec. 31, 2010

TAXES ON INCOME

NOTE 21 – TAXES ON INCOME

Itaú Unibanco and each of its subsidiaries file separate corporate income tax returns for each fiscal year. Income taxes in Brazil comprise federal income tax and social contribution on net income, which is an additional federal tax. The tax rates applicable to financial institutions in each year were as follows :

	01/01 to 12/31/2010		01/01 to 12/31/2009		01/01 to 12/31/2008
Federal income tax		25		25		25
Social contribution on net income (*)		15		15		15
Composite rate		40		40		40

(*) The Provisional Measure No. 413, of January 3, 2008, and Law No. 11,727, of June 23, 2008, increased the rate for social contribution on net income from 9% to 15% for financial and financial-equivalent companies effective as from May 1, 2008.

The amounts recorded as income tax expense in the consolidated financial statements are reconciled to the statutory rates as follows :

	01/01 to 12/31/2010			01/01 to 12/31/2009			01/01 to 12/31/2008
Income before taxes		16,828			23,461			3,544
Equity in earnings of unconsolidated companies, net		(308	)		9			(474	)
Calculation basis		16,520			23,470			3,070
Tax expense at statutory rates		(6,608	)		(9,388	)		(1,228	)
Nontaxable (deductible) exchange gains (losses) on foreign subsidiaries		(180	)		(1,356	)		775
Nondeductible expenses		(120	)		(86	)		(112	)
Nontaxable dividends on companies recorded at cost		122			101			67
Net tax benefit on interest on shareholders’ equity		1,496			1,474			660
Nondeductible stock-based compensation  (non deductible) / taxable		(79	)		(247	)		72
Nontaxable interest on foreign government debt securities		148			295			381
Constitution of valuation allowance		-			-			131
Effect of increase in social contribution rate – deferred tax		-			-			336
Other differences		284			358			252
Income tax income (expense)		(4,937	)		(8,849	)		1,334

The major components of the deferred tax accounts in the consolidated balance sheet are as follows:

	12/31/2010		12/31/2009
Deferred tax assets		25,758		26,162
Provisions not currently deductible :
Allowance for loan and lease losses		10,844		10,086
Taxes and Social Security		1,319		1,875
Other provisions		2,388		2,249
Tax loss carryforwards		3,320		3,284
Deferred tax asset for excess tax-deductible goodwill		5,112		6,269
Other temporary differences		2,775		2,399
Deferred tax liabilities		19,362		19,070
Temporary differences related to leases		8,296		7,568
Pension plan prepaid assets		1,064		1,097
Gain on Redecard transaction		1,812		1,812
Other temporary differences that include intangibles obtained in business combinations		8,190		8,593
Deferred tax liabilities/assets, included in Other liabilities/assets		6,396		7,092

The table below presents changes in our unrecognized tax benefits in accordance with ASC 740-10-25, from January 1 to December 31, 2010, 2009 and 2008, respectively:

	01/01 to 12/31/2010			01/01 to 12/31/2009			01/01 to 12/31/2008
At the beginning of the year		2,314			2,281			2,098
Balance of Unibanco’s acquisition		-			1,248			-
Gross amount of increases for prior years’ tax positions		570			618			192
Amounts of decreases related to settlements (*)		(175	)		(1,833	)		(9	)
At the end of the year		2,709			2,314			2,281

(*) As described in Note 30b, in 2009 and 2010 Itaú Unibanco Holding entered in the REFIS program.

Total amount of unrecognized tax benefits at December 31, 2010 would affect the effective tax rate if recognized in 2011.

The following table presents the change in interest and penalties included in unrecognized tax benefits:

	01/01 to 12/31/2010			01/01 to 12/31/2009			01/01 to 12/31/2008
At the beginning of the year		843			1,086			976
Balance of Unibanco’s acquisition		-			562			-
Total interest and penalties recognized during the year		98			200			119
Total interest and penalties reverted by payments		(38	)		(564	)		(9	)
Total interest and penalties reverted by REFIS (*)		(33	)		(441	)		-
At the end of the year		870			843			1,086

(*) As described in Note 30b, in 2009 and 2010 Itaú Unibanco Holding entered in the REFIS program.

We do not expect significant changes in the gross balance of unrecognized tax benefits within the next 12 months.

The earliest fiscal year subject to examination by Brazilian tax authorities is 2005.