Reliant FORM 10-K manual Income taxes

8.Income taxes

The following is a reconciliation of income taxes, calculated at the French income tax rate, to the income tax benefit (expense) included in the consolidated statements of operations for the years ended December 31:

	2003	2002	2001
Income taxes at French rates
(2003 - 35.4% 2002 - 35.4% 2001 - 36.4%)	50,886	74,647	139,325
Research and development credit	6,104	6,098	14,058
Foreign tax	(485)	(2,119)	(2,950)
Change in valuation allowance	(16,347)	(77,259)	(138,796)
Other (a)	(34,544)	273	22,436
Income tax benefit/(provision)	5,614	1,640	34,073
Income tax benefit/(provision)
Current	(490)	(2,270)	5,068
Deferred	6,104	3,910	29,005
Income tax benefit/(provision)	5,614	1,640	34,073

(a)Other includes rate differential as well as permanent differences.

The following table shows the significant components included in deferred income taxes as of December 31:

	2003	2002
Assets:
Tax benefit of tax credits	24,398	20,065
Tax benefit of losses	302,380	333,946
Provisions and reserves	12,710	(40,719)
	339,488	313,292
Valuation allowance	(263,894)	(247,547)
	75,594	65,745
Liabilities:
Plant and equipment	28,084	22,477
Net deferred income tax assets	47,510	43,268

The deferred income tax assets are all receivable in cash from the French government within the next 3 years as of December 31, 2003 or can be offset against taxes currently payable in that same period.

As of December 31, 2003, Nortel Networks S.A. had consolidated net operating loss carry forwards of approximately		747,359 which
will carry forward indefinitely and net capital loss carryforwards of	73,997 which expire in 2006 to 2013.	€
211€

Nortel Networks S.A. and certain subsidiaries are currently subject to an examination by taxation authorities in France and have received a preliminary notice of proposed assessment for a material amount. No amount has been included in the provision for income taxes for this notice of proposed assessment as Nortel Networks S.A. believes that this proposed assessment is without merit. However, if this matter is ultimately resolved unfavourably, it could have a material adverse effect on the consolidated financial position, results of operations, cash flows or tax carryforward attributes of Nortel Networks S.A.