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:

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:

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:

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:

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: