• Index
• 1
• 2
• 3
• 4
• 5
• 6
• 7
• 8
• 9
• 10
• 11
• 12
• 13
• 14
• 15
• 16
• 17
• 18
• 19
• 20
• 21

13 Income taxes

The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which it operates. The components of the income tax expense 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 the year ended 31 December 2017, the Group reported a tax charge of USD 132 million on a pre-tax income of USD 525 million, compared to a charge of USD 749 million on a pre-tax income of USD 4 372 million for 2016. This translates into an effective tax rate in the current and prior-year reporting periods of 25.1% and 17.1%, respectively.

For the year ended 31 December 2017, the tax rate was largely driven by profits earned in higher-tax jurisdictions, tax charges from foreign currency translation differences between statutory and US GAAP accounts and expenses not allowed for local tax purposes, partially offset by tax benefits from US tax law changes. The lower rate in the year ended 31 December 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.

At 31 December 2017, the tax rate includes a tax benefit of USD 93 million from US tax reform impact. The impact is included within the change in statutory rate and change in valuation allowance components of the tax rate reconciliation. The benefit arises from revaluing the US deferred tax assets and liabilities to the new US statutory tax rate of 21% (from 35%).

Deferred and other non-current taxes

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

As previously noted in the tax rate reconciliation, a tax benefit of USD 93 million arises from revaluing the US deferred tax assets and liabilities to the new US tax rate of 21% (from 35%). Accordingly, the revaluing reduced the US deferred tax assets by USD 1 220 million and the US deferred tax liabilities by USD 1 313 million (net USD 93 million).

As of 31 December 2017, 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 3.2 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 2017, the Group had USD 9 705 million net operating tax loss carryforwards, expiring as follows: USD 19 million in 2018, USD 47 million in 2019, USD 14 million in 2020, USD 11 million in 2021, USD 8 502 million in 2022 and beyond, and USD 1 112 million never expire.

As of 31 December 2017, the Group had capital loss carryforwards of USD 1 096 million, expiring as follows: USD 4 million in 2020, USD 4 million in 2021, USD 6 million in 2022, and USD 1 082 million never expire.

For the year ended 31 December 2017, net operating tax losses of USD 1 036 million and net capital tax losses of USD 27 million were utilised.

Income taxes paid in 2016 and 2017 were USD 755 million and USD 720 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:

As of 31 December 2016 and 2017, the amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 216 million and USD 206 million, respectively.

Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. For the years ended 31 December 2016 and 2017 such expenses were USD 21 million and USD 2 million, respectively. For the years ended 31 December 2016 and 2017, USD 52 million and USD 54 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2017 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 2017 presented in the table above excludes accrued interest and penalties (USD 54 million).

During the year, certain tax positions and audits in France and Switzerland 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: