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:

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:

The Group reported a tax charge of USD 749 million on a pre-tax income of USD 4 372 million for 2016, compared to a charge of USD 651 million on a pre-tax income of USD 5 319 million for 2015. This translates into an effective tax rate in the current and prior-year reporting periods of 17.1% and 12.2%, respectively.

The tax rate in 2016 was largely driven by benefits from the effective settlement of tax audits in certain jurisdictions and releases of valuation allowance on net operating losses partially offset by tax on profits earned in higher tax jurisdictions. The lower rate in 2015 was largely driven by a tax benefit arising from a local statutory accounting adjustment for restructuring of subsidiaries and higher tax benefits from foreign currency translation differences between statutory and US GAAP accounts.

Deferred and other non-current taxes

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

As of 31 December 2016, 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 2.2 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 2016, the Group had USD 8 697 million net operating tax loss carryforwards, expiring as follows: USD 25 million in 2018, USD 51 million in 2019, USD 19 million in 2020, USD 7 650 million in 2021 and beyond, and USD 952 million never expire.

The Group also had capital loss carryforwards of USD 1 030 million, expiring as follows: USD 82 million in 2019, USD 37 million in 2020, USD 4 million in 2021 and USD 907 million never expire.

Net operating tax losses of USD 1 713 million and net capital tax losses of USD 236 million were utilised during the period ended 31 December 2016.

Income taxes paid in 2015 and 2016 were USD 1 190 million and USD 755 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 345 million and USD 215 million at 31 December 2015 and 31 December 2016, respectively.

Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense in 2016 was USD 21 million (USD 35 million in 2015). As of 31 December 2015 and 31 December 2016, USD 72 million and USD 52 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2016 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 2016 presented in the table above excludes accrued interest and penalties (USD 52 million).

During the year, certain tax positions and audits in Switzerland, Germany, Italy, France, United Kingdom, Canada and the United States 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: