Optimized printing

Note 12 Income taxes

The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the Group operates. The components of the income tax charge were:

Download

USD millions

2011

2012

Current taxes

106

472

Deferred taxes

–29

653

Income tax expense

77

1 125

Tax rate reconciliation

The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the accompanying income statement:

Download

USD millions

2011

2012

Income tax at the Swiss statutory tax rate of 21.0%

604

1 160

Increase (decrease) in the income tax charge resulting from:

 

 

Foreign income taxed at different rates

138

150

Impact of foreign exchange movements

–38

–2

Tax exempt income/dividends received deduction

–45

–61

Change in valuation allowance

–143

–274

Tax effects of losses not recognised

 

73

Basis differences in subsidiaries

–368

–74

Change in statutory tax rates

–122

–44

Change in liability for unrecognised tax benefits including interest and penalties

99

146

Other, net

–48

51

Total

77

1 125

For 2012, the Group reported a tax expense of USD 1 125 million. This represents an effective tax rate of 20.4%, compared to an effective tax rate of 2.7% in the prior year. The increase in the tax rate was primarily due to lower tax benefits in the year from reductions in tax basis in subsidiaries based on write-downs in the value required in local statutory statements, changes in local country tax rates and tax effects of losses not recognised.

Deferred and other non-current taxes

The components of deferred and other non-current taxes were as follows:

Download

USD millions

2011

2012

Deferred tax assets

 

 

Income accrued/deferred

599

480

Technical provisions

1531

541

Pension provisions

292

355

Benefit on loss carryforwards

4 046

3 748

Currency translation adjustments

481

514

Other

1 378

1 239

Gross deferred tax asset

8 327

6 877

Valuation allowance

–1 418

–1 159

Total

6 909

5 718

 

 

 

Deferred tax liabilities

 

 

Present value of future profits

–1 082

–752

Income accrued/deferred

–629

–598

Bond amortisation

–139

–188

Deferred acquisition costs

–687

–680

Technical provisions

–2 446

–2 559

Unrealised gains on investments

–1932

–1 487

Untaxed realised gains

–373

–557

Foreign exchange provisions

–418

–301

Other

–800

–826

Total

–8 506

–7 948

 

 

 

Deferred income taxes

–1 597

–2 230

 

 

 

Liability for unrecognised tax benefits including interest and penalties

–1 256

–1 494

 

 

 

Deferred and other non-current taxes

–2 853

–3 724

As of 31 December 2012, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures for which deferred tax liabilities have not been recognised amount to approximately USD 4 695 million. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.

As of 31 December 2012, the Group had USD 11 674 million net operating tax loss carryforwards, expiring as follows: USD 3 million in 2017, USD 6 916 million in 2018 and beyond, and USD 4 755 million never expire.

The Group also had capital loss carryforwards of USD 532 million, expiring as follows: USD 18 million in 2014 and USD 514 million never expire.

Net operating tax losses of USD 1 957 million and capital tax losses of USD 154 million were utilised or expired during the period ended 31 December 2012.

Income taxes paid in 2012 and 2011 were USD 123 million and USD 749 million, respectively.

Unrecognised tax benefits

A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows:

Download

USD millions

2011

2012

Balance as of 1 January

980

1 047

Additions based on tax positions of current year

373

246

Reductions for tax positions of current year

 

–53

Additions for tax positions of prior years

9

91

Reductions for tax positions of prior years

–219

–110

Settlements

–1

–8

Lapse of statute of limitations

–95

15

Balance as of 31 December

1 047

1 228

The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate was approximately USD 726 million and USD 871 million at 31 December 2011 and 2012, respectively.

Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such benefit for the period ending 31 December 2012 was USD 56 million (USD 6 million for the period ending 31 December 2011). As of 31 December 2011 and 2012, USD 209 million and USD 266 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2012 is included within the deferred and other non-current taxes section reflected above and in the statement of financial position.

The balance of gross unrecognised tax benefits as of 31 December 2012 presented in the table above is less than the liability for unrecognised tax benefits reflected in the deferred and other non-current taxes section due to the removal of interest expense (USD 266 million).

During the year, certain tax positions and audits in Switzerland and Germany were effectively settled.

The Group continually evaluates proposed adjustments by taxing authorities. The Group believes that it is reasonably possible (more than remote and less than likely) that the balance of unrecognised tax benefits could increase or decrease over the next 12 months due to settlements or expiration of statutes of limitation. However, quantification of an estimated range cannot be made at this time.

The following table summarises jurisdictions and tax years that remain subject to examination:

Download

Australia

2006 - 2012

 

Korea

2008 - 2012

Belgium

2010 - 2012

 

Luxembourg

2008 - 2012

Brazil

2008 - 2012

 

Malaysia

1996 - 2012

Canada

2007 - 2012

 

Mexico

2007 - 2012

China

2003 - 2012

 

Netherlands

2010 - 2012

Denmark

2008 - 2012

 

New Zealand

2006 - 2012

France

2008 - 2012

 

Singapore

2007 - 2012

Germany

2001 - 2012

 

Slovakia

2007 - 2012

Hong Kong

1994 - 2012

 

South Africa

2004 - 2005; 2009 - 2012

India

2005 - 2012

 

Spain

2008 - 2012

Ireland

2010 - 2012

 

Switzerland

2005 - 2012

Israel

2008 - 2012

 

United Kingdom

2008, 2011 - 2012

Italy

2008 - 2012

 

United States

2009 - 2012

Japan

2008 - 2012