HSBC 2008 Annual Report Download - page 384

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 11
382
(2007: 17.5 per cent; 2006: 17.5 per cent). 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:
2008 2007 2006
US$m % US$m % US$m %
Analysis of tax expense
Taxation at UK corporation tax rate of
28.5% (2007 and 2006: 30%)1 ....................... 2,652 28.5 7,264 30.0 6,626 30.0
Goodwill impaired .............................................. 3,010 32.3 – – – –
Effect of taxing overseas profits in
principal locations at different rates ............... (1,339) (14.4) (1,460) (6.0) (568) (2.6)
Tax-free gains ..................................................... (1,016) (10.9) (296) (1.2) (199) (0.9)
Adjustments in respect of prior period
liabilities ......................................................... (67) (0.7) (309) (1.3) (106) (0.5)
Low income housing tax credits2 ....................... (103) (1.1) (107) (0.4) (108) (0.5)
Effect of profit in associates and joint
ventures .......................................................... (473) (5.1) (450) (1.9) (253) (1.1)
Effect of previously unrecognised
temporary differences3 ................................... (98) (1.1) (485) (2.0) (122) (0.6)
Release of deferred tax consequent on
restructuring of Group interests ..................... – – (359) (1.5) – –
Impact of gains arising from dilution of
interests in associates4 .................................... – – (253) (1.0) – –
Other items .......................................................... 243 2.7 212 0.8 (55) (0.2)
Overall tax expense ............................................ 2,809 30.2 3,757 15.5 5,215 23.6
1 The change in the UK corporation tax rate from 30 per cent to 28 per cent with effect from 1 April 2008 gave rise to a blended tax rate
for 2008 of 28.5 per cent.
2 Low income housing tax credits arise in the US and are designed to encourage the provision of rental housing for low income
households.
3 The effect of previously unrecognised temporary differences principally relates to the recognition of trading losses (2007 and
2006: capital losses).
4 The gains arising from the dilution of HSBC’s interests in associates were not subject to tax and, as such, there is a reconciling item
which reduces the effective tax rate for 2007 (see Note 4).
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$1,879 million increase in total equity (2007:
US$226 million reduction in total equity; 2006: US$44 million reduction 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 at 31 December 2007.
It gave rise to a credit to the Group’s tax charge of US$28 million in 2007.
Deferred taxation
HSBC
2008 2007
US$m US$m
At 1 January ....................................................................................................................................... 3,425 2,145
Income statement credit ..................................................................................................................... 565 1,448
Equity:
– available-for-sale investments .................................................................................................... 582 (8)
– cash flow hedges ........................................................................................................................ 92 470
– share-based payments ................................................................................................................. – (65)
– actuarial gains/(losses) ............................................................................................................... 433 (642)
Foreign exchange and other adjustments .......................................................................................... 59 77
At 31 December ................................................................................................................................. 5,156 3,425