HSBC 2015 Annual Report Download - page 372

Notes on the Financial Statements (continued)
8 – Tax / 9 – Dividends
HSBC HOLDINGS PLC
370
Critical accounting estimates and judgements
Deferred tax assets
The recognition of a deferred tax asset relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of
existing taxable temporary differences and ongoing tax planning strategies. In the absence of a history of taxable profits, the most significant
judgements relate to expected future profitability and to the applicability of tax planning strategies, including corporate reorganisations.
In previous years the US deferred tax recognition relied on capital support from HSBC Holdings plc due to significant losses in the past. The
US has been profitable in recent years and the improved performance is expected to continue, so the US deferred tax recognition is now
based on projections of future business profits.
Tax expense
2015 2014 2013
$m $m $m
Current tax
–
for this year 3,882 4,477 4,050
–
adjustments in respect of prior years (85) (527) (109)
3,797 3,950 3,941
Deferred tax (26) 25 824
–
origination and reversal of temporary differences (153) (477) 739
–
effect of changes in tax rates 110 83 93
–
adjustments in respect of prior years 17 419 (8)
Year ended 31 December 3,771 3,975 4,765
1 Current tax included Hong Kong profits tax of $1,294m (2014: $1,135m; 2013: $1,133m). The Hong Kong tax rate applying to the profits of subsidiaries
assessable in Hong Kong was 16.5% (2014: 16.5%; 2013: 16.5%). Other overseas subsidiaries and overseas branches provided for taxation at the
appropriate rates in the countries in which they operated.
Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK
corporation tax rate as follows:
2015 2014 2013
$m %$m % $m %
Profit before tax 18,867 18,680 22,565
Tax expense
Tax at 20.25% (2014: 21.5%; 2013: 23.25%) 3,821 20.25 4,016 21.5 5,246 23.25
Effect of differently taxed overseas profits 71 0.4 33 0.2 (177) (0.8)
Adjustments in respect of prior period liabilities (68) (0.4) (108) (0.6) (117) (0.5)
Deferred tax temporary differences not recognised/
(previously not recognised) (205) (1.1) (154) (0.8)
332 1.5
Effect of profits in associates and joint ventures (508) (2.7) (547) (2.9) (543) (2.4)
Tax effect of disposal of Ping An
–
–
–
–
(111) (0.5)
Tax effect of reclassification of Industrial Bank
–
–
–
–
(317) (1.4)
Non-taxable income and gains (728) (3.9) (668) (3.5) (871) (3.9)
Permanent disallowables 978 5.2 969 5.1 647 2.9
Change in tax rates 110 0.6 22 0.1 93 0.4
Local taxes and overseas withholding taxes 416 2.2 434 2.3 551 2.4
Other items (116) (0.6) (22) (0.1) 32 0.1
Year ended 31 December 3,771 20.0 3,975 21.3 4,765 21.1
The Group’s profits are taxed at different rates depending on the country in which the profits arise. The key applicable tax
rates include Hong Kong (16.5%), USA (35%) and UK (20.25%). If the Group’s profits were taxed at the statutory rates of the
countries in which the profits arise then the tax rate for the year would have been 20.65%. The effective tax rate for the year
was 20.0% (2014: 21.3%) and is in line with expectations. We expect the effective tax rate to increase due to the introduction
of the 8% surcharge on UK banking profits in 2016.
Accounting for taxes involves some estimation because the tax law is uncertain and the application requires a degree of
judgement, which authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking
into account external advice where appropriate. We do not expect significant liabilities to arise in excess of the amounts
provided. HSBC only recognises current and deferred tax assets where recovery is probable.