• Index
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11 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:

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 2013, the Group reported a tax expense of USD 312 million. This represents an effective tax rate of 6.5%, compared to an effective tax rate of 20.4% in the prior year. The lower tax rate in the current year is primarily due to lower taxes on the geographical mix of earnings, non-taxable income in Switzerland and the release of uncertain tax liabilities upon effective settlements with local tax authorities.

Deferred and other non-current taxes

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

As of 31 December 2013, 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 3.9 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 2013, the Group had USD 11 172 million net operating tax loss carryforwards, expiring as follows: USD 70 million in 2017, USD 152 million in 2018, USD 6 380 million in 2019 and beyond and USD 4 570 million never expire.

The Group also had capital loss carryforwards of USD 677 million, expiring as follows: USD 1 million in 2016 and USD 676 million never expire.

Net operating tax losses of USD 2 076 million and net capital tax losses of USD 24 million were utilised during the period ended 31 December 2013.

Income taxes paid in 2012 and 2013 were USD 123 million and USD 447 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 were approximately USD 871 million and USD 778 million at 31 December 2012 and 31 December 2013, respectively.

Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense for the period ending 31 December 2013 was USD 128 million (USD 56 million for the period ending 31 December 2012). As of 31 December 2012 and 31 December 2013, USD 266 million and USD 138 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2013 is included within the deferred and other non-current taxes section reflected above and in the balance sheet.

The balance of gross unrecognised tax benefits as of 31 December 2013 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 exclusion of interest expense (USD 138 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. 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: