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Reconciliation of the income tax expense at the U.S. statutory rate to the effective rate is as follows: 

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In 2003, the sale of Bunge’s Brazilian soy ingredients business to Solae for a gain of $111 million did not result in taxable income and, therefore, no income tax was provisioned. However, Bunge recorded a net tax expense of $23 million relating to new tax laws in South America. 

Bunge has obtained tax benefits under U.S. tax laws providing tax incentives on export sales from the use of a U.S. Foreign Sales Corporation (FSC) through 2001. Beginning in 2002, due to the repeal of the FSC-related legislation, Bunge was required 

## notes to the consolidated financial statements 

to use the tax provisions of the Extraterritorial Income Act (ETI) legislation, which were substantially similar to the FSC-related legislation. The U.S. Congress has recently passed and the President has signed the American Jobs Creation Act of 2004 that ultimately repeals the ETI benefit. Under the new legislation, the ETI will be phased out with 100% of the otherwise available ETI benefit retained for 2004, 80% of the otherwise available ETI benefit retained for 2005, 60% of the otherwise available ETI benefit retained for 2006 and the ETI benefit phased out completely in 2007. The ETI benefit has been replaced with an income tax deduction intended to allocate benefits previously provided to U.S. exporters across all manufacturers when fully phased in. Although most of Bunge’s U.S. operations qualify as “manufacturing,” Bunge expects that this new tax legislation will be less beneficial to it than the prior one primarily due to Bunge’s U.S. tax position. 

In 2003, a new tax law was enacted in South America affecting exporters of certain products, including grains and oilseeds. The tax law generally provides that in certain circumstances when an export is made to a related party that is not the final purchaser of the exported products, the income tax payable by the exporter with respect to such sales must be based on the greater of the contract price of the exported products or the market price of the products at the date of shipment. The tax effect of this new tax law was reflected in income tax expense in the consolidated statements of income for the years ended December 31, 2004 and 2003. 

Certain Bunge subsidiaries had undistributed earnings amounting to approximately $541 million and $519 million at December 31, 2004 and 2003. These are considered to be permanently rein- vested and, accordingly, no provision for income taxes has been made. It is not practicable to determine the deferred tax liability for temporary differences related to these undistributed earnings. Deferred taxes are provided for subsidiaries having undistributed earnings not considered to be permanently invested. The primary components of the deferred tax assets and liabilities and the related valuation allowance are as follows: 

