HSBC 2006 Annual Report Download - page 340

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 9, 10, 11 and 12
338
2006 2005
Number
Exercise
price Number
Exercise
price
(000’s) US$ (000’s) US$
HSBC Finance Corporation share options
outstanding at 1 January ........................................... 6,358 10.66 7,112 10.66
Exercised in the year ..................................................... (3,219) 10.66 (754) 10.66
Forfeited in the year ...................................................... (13) 10.66 – –
Outstanding at 31 December ........................................ 3,126 10.66 6,358 10.66
Of which exercisable .................................................... 3,126 10.66 5,520 10.66
The weighted average share price at the date the share options were exercised was US$17.65 (2005: US$16.18).
10 Tax expense
2006 2005 2004
US$m US$m US$m
Current tax
United Kingdom corporation tax charge – on current year profit .................. 772 663 848
United Kingdom corporation tax charge – adjustments in respect of
prior years .................................................................................................... (122) 29 (132)
Overseas tax – on current year profit .............................................................. 4,600 4,103 2,877
Overseas tax – adjustments in respect of prior years ...................................... (48) (110) (21)
5,202 4,685 3,572
Deferred tax
Origination and reversal of temporary differences ......................................... (51) 506 1,204
Effect of changes in tax rates .......................................................................... – 8 (15)
Adjustments in respect of prior years .............................................................. 64 (106) (76)
13 408 1,113
Tax expense ..................................................................................................... 5,215 5,093 4,685
The UK corporation tax rate applying to HSBC Holdings and its subsidiary undertakings was 30 per cent (2005:
30 per cent; 2004: 30 per cent). Overseas tax included Hong Kong profits tax of US$751 million (2005:
US$639 million; 2004: US$539 million). Subsidiaries in Hong Kong provided for Hong Kong profits tax at the rate
of 17.5 per cent (2005: 17.5 per cent; 2004: 17.5 per cent) on the profits for the year assessable in Hong Kong. Other
overseas subsidiaries and overseas branches provided for taxation at the appropriate rates in the countries in which
they operate.
The following table reconciles the tax expense which would apply if all profits had been taxed at the UK corporation
tax rate:
2006 2005 2004
US$m % US$m % US$m %
Analysis of tax expense
Taxation at UK corporation tax rate of
30% (2005 and 2004: 30% ) .................. 6,626 30.0 6,290 30.0 5,683 30.0
Effect of taxing overseas profits in
principal locations at different rates ....... (568) (2.6) (342) (1.6) (347) (1.8)
Tax-free gains ............................................. (199) (0.9) (220) (1.0) (64) (0.3)
Adjustments in respect of prior period
liabilities .................................................. (106) (0.5) (187) (0.9) (229) (1.2)
Low income housing tax credits1 ............... (108) (0.5) (110) (0.5) (95) (0.5)
Other items .................................................. (177) (0.8) (145) (0.8) 9 (0.1)
Deductible innovative tier 1 capital
expense presented below profit before
tax ........................................................... – – – – (192) (1.0)
Effect of profit in associates and joint
ventures .................................................. (253) (1.1) (193) (0.9) (80) (0.4)
Tax expense ................................................ 5,215 23.6 5,093 24.3 4,685 24.7
1 Low income housing tax credits arise in the US and are designed to encourage the provision of rental housing for low income
households.