HSBC 2007 Annual Report Download - page 386

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 11
384
The following table reconciles the tax expense which would apply if all profits had been taxed at the UK
corporation tax rate:
2007 2006 2005
US$m % US$m % US$m %
Analysis of tax expense
Taxation at UK corporation tax rate of
30% (2006 and 2005: 30% ) .................. 7,264 30.0 6,626 30.0 6,290 30.0
Effect of taxing overseas profits in
principal locations at different rates ....... (1,460) (6.0) (568) (2.6) (342) (1.6)
Tax-free gains ............................................. (296) (1.2) (199) (0.9) (220) (1.0)
Adjustments in respect of prior period
liabilities .................................................. (309) (1.3) (106) (0.5) (187) (0.9)
Low income housing tax credits1 ............... (107) (0.4) (108) (0.5) (110) (0.5)
Effect of profit in associates and joint
ventures .................................................. (450) (1.9) (253) (1.1) (193) (0.9)
Effect of previously unrecognised
temporary differences2 ........................... (485) (2.0) (122) (0.6) (147) (0.8)
Release of deferred tax consequent on
restructuring of Group interests ............. (359) (1.5) – – – –
Impact of gains arising from dilution of
interests in associates3 ............................ (253) (1.0) – – – –
Other items .................................................. 212 0.8 (55) (0.2) 2 –
Overall tax expense .................................... 3,757 15.5 5,215 23.6 5,093 24.3
1 Low income housing tax credits arise in the US and are designed to encourage the provision of rental housing for low income
households.
2 The effect of previously unrecognised temporary differences principally relates to the recognition of capital losses.
3 The gains arising from the dilution of HSBC’s interests in associates are not subject to tax and, as such, there is a reconciling item
which reduces the effective tax rate (see note 21).
In addition to the amount charged to the income statement, the aggregate amount of current and deferred tax,
relating to items that are taken directly to total equity, was a US$226 million reduction in total equity (2006:
US$44 million reduction in total equity; 2005: US$437 million increase in total equity).
The 2007 Finance Act reduction in the UK corporation tax rate from 30 per cent to 28 per cent, enacted in 2007 but
commencing in 2008, resulted in a one off re-measurement of deferred tax assets and liabilities. It gave rise to a credit
to the Group’s tax charge of US$28 million.
Deferred taxation
HSBC
2007 2006
US$m US$m
At 1 January ....................................................................................................................................... 2,145 2,135
Income statement credit/(charge) ...................................................................................................... 1,448 (13)
Equity:
– available-for-sale investments ........................................................................................................ (8) (2)
– cash flow hedges ............................................................................................................................. 470 321
– share-based payments ..................................................................................................................... (65) (42)
– actuarial gains and losses ............................................................................................................... (642) (324)
Foreign exchange and other adjustments .......................................................................................... 77 70
At 31 December ................................................................................................................................. 3,425 2,145
Asset .................................................................................................................................................. 5,284 3,241
Liability .............................................................................................................................................. (1,859) (1,096)
3,425 2,145