13. INCOME TAXES Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants’ taxes and enterprise tax, which, in the aggregate, resulted in a statutory rate of approximately 41% for 2004 and 42% for 2003 and 2002. Income taxes of the foreign consolidated subsidiaries are based generally on the tax rates applicable in their countries of incorporation. The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2005, 2004 and 2003 differ from the statutory tax rates for the following reasons: FINANCIAL SECTION Thousands of Millions of yen U.S. dollars 2004 2003 2004 As of Mar. 31, 2005 Mar. 31, 2004 Mar. 31, 2005 Deferred tax assets: Net operating loss carryforwards ..................................................................................................................................... ¥ 24,660 ¥ 40,150 $ 230,467 Accrued retirement benefits ................................................................................................................................................. 172,379 162,926 1,611,019 Accrued warranty costs ............................................................................................................................................................ 38,047 44,381 355,579 Other ........................................................................................................................................................................................................ 379,543 299,344 3,547,131 Gross deferred tax assets ............................................................................................................................................................... 614,629 546,801 5,744,196 Valuation allowance .............................................................................................................................................................................. (36,369) (36,689) (339,897) Total deferred tax assets ................................................................................................................................................................. 578,260 510,112 5,404,299 Deferred tax liabilities: Reserves under Special Taxation Measures Law, etc. ................................................................................... (379,924) (306,316) (3,550,692) Difference between cost of investments and  their underlying net equity at fair value .................................................................................................................... (88,840) (72,508) (830,280) Unrealized holding gain on securities ........................................................................................................................... (5,971) (2,853) (55,804) Other ........................................................................................................................................................................................................ (128,577) (91,028) (1,201,654) Total deferred tax liabilities ............................................................................................................................................................ (603,312) (472,705) (5,638,430) Net deferred tax (liabilities) assets .......................................................................................................................................... ¥ (25,052) ¥ 37,407 $ (234,131) The significant components of deferred tax assets and liabilities at March 31, 2005 and 2004 were as follows: 2004 2003 2002 For the years ended Mar. 31, 2005 Mar. 31, 2004 Mar. 31, 2003 Statutory tax rates ................................................................................................................................................................................................................. 40.6% 41.9% 41.9% Effect of: Decrease in valuation allowance ................................................................................................................................................................ (1.9) (5.5) (9.7) Different tax rates applied to foreign subsidiaries ....................................................................................................................... (2.7) (4.3) (3.8) Tax credits ..................................................................................................................................................................................................................... (1.5) (2.0) — Equity in earnings of unconsolidated subsidiaries and affiliates ...................................................................................... (1.9) (0.6) (0.7) Adjustments in deferred tax assets and liabilities due to change in tax rate ......................................................... — — 0.8 Other .................................................................................................................................................................................................................................. 0.1 0.2 0.1 Effective tax rates .................................................................................................................................................................................................................. 32.5% 29.7% 28.6% Nissan Annual Report 2004 84