HSBC 2012 Annual Report Download - page 46

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Group performance by income and expense item / Consolidated balance sheet
44
The reported share of profit in associates and joint
ventures was US$3.6bn, an increase of 9% compared
with 2011. On a constant currency basis, it increased
by 7%, driven by higher contributions from our
associates in mainland China.
Our share of profits from BoCom rose, as a
result of loan growth and higher fee income from
cards, management service and guarantees and
commitments. This was partly offset by increased
operating expenses reflecting investment in staff
and technology, and higher loan impairment charges.
Profits from Industrial Bank also increased,
reflecting continued growth in lending balances
and a rise in associated fee income, partly offset
by higher operating expenses in line with business
expansion, as well as increased loan impairment
charges. On 7 January 2013, our holding in
Industrial Bank was diluted following its issue of
additional share capital to third parties. Our
shareholding has now been classified as a financial
investment.
Profits from The Saudi British Bank rose, driven
by higher revenues reflecting strong balance sheet
growth and lower costs resulting from effective
control and monitoring.
Profits from Ping An were lower due to market
valuation losses on equity securities held by their
insurance business, reflecting volatile domestic
equity markets, partly offset by increased income
from the banking business reflecting the contribution
of Ping An Bank (formerly Shenzhen Development
Bank). On 5 December 2012, we agreed to sell our
entire shareholding in Ping An and recognised a gain
on the disposal of the associate. Our remaining
shareholding has been classified as a financial
investment (see page 39 for details of this
transaction).
Tax expense
2012
US$m
2011
US$m
2010
US$m
Profit before tax .......................................................................................................... 20,649 21,872 19,037
Tax expense ................................................................................................................ (5,315) (3,928) (4,846)
Profit after tax ............................................................................................................. 15,334 17,944 14,191
Effective tax rate ......................................................................................................... 25.7%
18.0%
25.5%
The tax charge in 2012 was US$1.4bn or 35% higher
than in 2011 on a reported basis.
The higher tax charge in 2012 reflected the non-
tax deductible effect of fines and penalties paid as
part of the settlement of investigations into past
inadequate compliance with anti-money laundering
and sanctions laws, together with the non-recognition
of the tax benefit in respect of the accounting charge
associated with negative fair value movements on
own debt. The lower tax charge in 2011 included the
benefit of US deferred tax recognised in 2011 in
respect of foreign tax credits.
As a result of these factors, the reported effective
tax rate for 2012 was 25.7 % compared with 18.0%
for 2011.
In 2012, the tax paid by the Group was
US$9.3bn (2011: US$8.0bn). The amount differs
from the tax charge reported in the income statement
due to indirect taxes such as VAT and the bank levy
included in the pre-tax profit and the timing of
payments.
The Group also plays a major role as tax
collector for governments in the jurisdictions in
which we operate. In 2012, the Group collected
US$8.5bn (2011: US$8.7bn).