Daiwa Securities Group Annual Report 2012 The Company and its domestic consolidated subsidiaries are subject to a number of taxes levied on income. The effective statutory tax rate in  Japan was approximately 40.7% for the years ended March 31, 2012 and 2011. Overseas consolidated subsidiaries are subject to income  taxes of the countries in which they operate. Reconciliation of the difference between the statutory income tax rate and the effective income tax rate for the year ended March 31, 2012  and 2011 are not presented, since net loss is reported in the consolidated statements of income. Details of deferred tax assets and liabilities at March 31, 2012 and 2011 are as follows: 14. Income taxes On December 2, 2011, amendments to the Japanese tax regula- tions were enacted into law. As a result of these amendments, the  statutory income tax rate for the Company will be reduced to 38.01%  for years beginning on or after April 1, 2012 and 35.64% for years  beginning on or after April 1, 2015. For the year ended March 31,  2012, due to these changes in statutory income tax rate, net deferred  tax assets decreased by ¥705 million ($8,598 thousand) and deferred  income tax expenses increased by ¥1,385 million ($16,890 thousand)  and valuation difference on available-for-sale securities increased by  ¥798 million ($9,732 thousand) respectively. In addition, deferred gains  or losses on hedges decreased by ¥118 million ($1,440 thousand). The Company and certain consolidated subsidiaries provided valua- tion allowance to reflect the estimated unrealized amount of gross  deferred tax assets. The valuation allowance was provided mainly  against deferred tax assets stated at the Company and domestic  subsidiaries with tax loss carry-forwards. In assessing the realizability  of deferred tax assets, management considers, as part of its schedul- ing exercise, factors such as expected taxable income, reversal of  temporary differences and utilization of tax loss carry-forwards, and  determines whether it is more likely than not that the assets are not  realizable in which case the valuation allowance is provided. The Financial Instruments and Exchange Act of Japan requires a securities company to set aside a reserve in proportion to its securities transac- tions and other related trading to cover future eventual operational losses caused by the securities company for customer transactions. Daiwa had contingent liabilities amounting to ¥2,630 million ($32,073 thousand) and ¥3,059 million at March 31, 2012 and 2011, respectively,  mainly arising as guarantors of employees’ borrowings. 15. Statutory reserves 16. Contingent liabilities 84 Corporate Summary Executive Messages Business Strategy Other Information Management Systems & CSR Financial Section Millions of yen Thousands of  U.S. dollars 2012 2011 2012 Deferred tax assets: Net operating losses carry-forward ¥ 179,644 ¥ 151,793 $ 2,190,780 Revaluation of assets on consolidation 14,094 – 171,878 Write-down of investment securities 11,463 13,550 139,793 Retirement benefits 10,945 12,038 133,476 Compensation and bonuses 3,118 3,835 38,024 Allowance for doubtful accounts 1,490 1,492 18,171 Impairment losses on fixed assets 10,944 7,037 133,463 Elimination of unrealized gain 2,611 4,074 31,841 Loss on private equity and other investments 9,627 10,887 117,402 Loss on trading 5,198 7,018 63,390 Other 17,966 13,668 219,099 Gross deferred tax assets 267,100 225,392 3,257,317 Less: Valuation allowance (244,577) (186,512) (2,982,646) Total deferred tax assets 22,523 38,880 274,671 Deferred tax liabilities 11,655 6,716 142,134 Net deferred tax assets ¥ 10,868 ¥ 32,164 $ 132,537