13 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:

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USD millions

2014

2015

Current taxes

1 072

582

Deferred taxes

–414

69

Income tax expense

658

651

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:

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USD millions

2014

2015

Income tax at the Swiss statutory tax rate of 21.0%

888

1 117

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

 

 

Foreign income taxed at different rates

137

303

Impact of foreign exchange movements

–86

–180

Tax exempt income/dividends received deduction

–105

–93

Change in valuation allowance

99

–72

Basis differences in subsidiaries

–155

–306

Change in liability for unrecognised tax benefits including interest and penalties

–207

–126

Other, net

87

8

Total

658

651

The Group reported a tax charge of USD 651 million on a pre-tax income of USD 5 319 million for 2015, compared to a charge of USD 658 million on a pre-tax income of USD 4 227 million for 2014. This translates into an effective tax rate in the current and prior-year reporting periods of 12.2% and 15.6%, respectively. The lower tax rate in 2015 was largely driven by a tax benefit arising from a local statutory adjustment for the restructuring of subsidiaries, higher tax benefits from foreign currency translation differences between statutory and GAAP accounts, and the release of valuation allowances partially offset by tax on profits earned in higher tax jurisdictions.

Deferred and other non-current taxes

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

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USD millions

2014

2015

Deferred tax assets

 

 

Income accrued/deferred

291

295

Technical provisions

620

685

Pension provisions

289

330

Benefit on loss carryforwards

3 980

3 467

Currency translation adjustments

412

394

Unrealised gains in income

422

226

Other

1 063

1 397

Gross deferred tax asset

7 077

6 794

Valuation allowance

–935

–789

Unrecognised tax benefits offsetting benefits on loss carryforwards

–24

–35

Total deferred tax assets

6 118

5 970

 

 

 

Deferred tax liabilities

 

 

Present value of future profits

–640

–514

Income accrued/deferred

–929

–923

Bond amortisation

–374

–639

Deferred acquisition costs

–730

–914

Technical provisions

–3 104

–2 685

Unrealised gains on investments

–1 657

–702

Untaxed realised gains

–394

–224

Foreign exchange provisions

–279

–352

Other

–671

–760

Total deferred tax liabilities

–8 778

–7 713

 

 

 

Liability for unrecognised tax benefits including interest and penalties

–667

–380

Total deferred and other non-current tax liabilities

–9 445

–8 093

 

 

 

Net deferred and other non-current taxes

–3 327

–2 123

As of 31 December 2015, 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 4.4 billion. 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 2015, the Group had USD 10 200 million net operating tax loss carryforwards, expiring as follows: USD 26 million in 2018, USD 54 million in 2019, USD 14 million in 2020, USD 8 123 million in 2021 and beyond, and USD 1 983 million never expire.

The Group also had capital loss carryforwards of USD 1 266 million, expiring as follows: USD 82 million in 2019, USD 71 million in 2020 and USD 1 113 million never expire.

Net operating tax losses of USD 1 424 million and net capital tax losses of USD 321 million were utilised during the period ended 31 December 2015.

Income taxes paid in 2014 and 2015 were USD 509 million and USD 1 190 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:

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USD millions

2014

2015

Balance as of 1 January

1 013

579

Additions based on tax positions related to current year

26

35

Additions based on tax positions related to prior years

71

115

Reduction for tax positions of current year

–137

–1

Reductions for tax positions of prior years

–248

–265

Settlements

–90

–98

Other (including foreign currency translation)

–56

–22

Balance as of 31 December

579

343

The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 539 million and USD 345 million at 31 December 2014 and 31 December 2015, respectively.

Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense in 2015 was USD 35 million (USD 19 million in 2014). As of 31 December 2014 and 31 December 2015, USD 112 million and USD 72 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2015 is included within the deferred and other non-current taxes section reflected in the balance sheet.

The balance of gross unrecognised tax benefits as of 31 December 2015 presented in the table above excludes accrued interest and penalties (USD 72 million).

During the year, certain tax positions and audits in Switzerland, France, Italy 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. However, quantification of an estimated range cannot be made at this time.

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

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Australia

2010-2015

 

Japan

2009-2015

Belgium

2013-2015

 

Korea

2013-2015

Brazil

2011-2015

 

Luxembourg

2011-2015

Canada

2011-2015

 

Malaysia

2013-2015

China

2005-2015

 

Mexico

2009-2015

Colombia

1999, 2009, 2013-2015

 

Netherlands

2011-2015

Denmark

2010-2015

 

New Zealand

2009-2015

France

2008-2009, 2012-2015

 

Singapore

2011-2015

Germany

2007-2015

 

Slovakia

2011-2015

Hong Kong

2009-2015

 

South Africa

2011-2015

India

2005-2015

 

Spain

2011-2015

Ireland

2010-2015

 

Switzerland

2012-2015

Israel

2008-2015

 

United Kingdom

2008, 2011-2015

Italy

2011-2015

 

United States

2009-2015