Barclays 2011 Annual Report Download - page 217

11 Tax continued
US deferred tax assets in BGUS and the US Branch
The deferred tax asset in BGUS and the US Branch includes amounts relating to tax losses of £329m and £603m respectively, which first arose in 2007.
In accordance with US tax rules tax losses can be carried forward and offset against profits for a period of 20 years and therefore any unused tax losses
may begin to expire in 2028. The remaining balance primarily relates to temporary differences which are not time limited. The deferred tax asset for the
US Branch has been measured using a marginal tax rate being the excess of the US tax rate (a combination of Federal, City and State taxes) over the UK
statutory rate.
BGUS is forecast to return to profitability in 2012, primarily driven by BCI, its US Broker Dealer, with tax losses expected to be fully utilised by 2014. 2011
losses were driven in a large part by macroeconomic conditions, affected by the European sovereign debt crisis and regulatory uncertainty, as opposed
to underlying business strategy. A significant proportion of prior period losses related to real estate portfolios and businesses that have now been sold
or liquidated.
Profit forecasts reflect the continued focus on operating as a premier full service global investment bank. They also reflect markets re-stabilising and
returning to conditions similar to those in 2010. Included in these projections are revenue assumptions based on maintaining our current share in FICC
and certain growth prospects that exist in IBD and Equities. Cost projections reflect savings based on continuing initiatives in this area as well as further
costs associated with increased levels of liquidity for the US business. As with any current forecast, there are significant uncertainties in relation to
macroeconomic conditions and regulatory requirements. A 20% reduction in forecasted profit would not extend the recovery period. The assumptions
used in the profit forecasts do not include any incremental tax planning strategies.
The tax losses in the US Branch primarily relate to losses on legacy credit market exposures, the majority of which the US Branch no longer holds. The
tax losses are projected to be fully utilised by 2016, based on profit forecasts covering the period from 2012 to 2014, with no profit growth assumed
after 2014. The underlying assumptions used in the forecast are consistent with those used for BGUS. A 20% reduction in forecasted profit would
extend the recovery period by 1 year to 2017. The assumptions used in the profit forecasts do not include any incremental tax planning strategies.
Spain deferred tax asset
The deferred tax asset in Spain includes £417m relating to tax losses incurred in 2010 and 2011. In accordance with Spanish tax rules tax losses can be
carried forward and offset against profits for a period of 18 years. The remaining balance primarily relates to temporary differences which are not time
limited.
The 2010 losses are expected to be fully utilised by 2021 and the 2011 losses by 2024. Additional tax losses are anticipated to arise in 2012 and 2013.
The recoverability of the deferred tax asset has been determined using business profit forecasts covering the period from 2012 to 2015, with a
subsequent annual growth rate of 1% p.a. The forecasts are consistent with those used for the purposes of the goodwill impairment assessment. They
reflect the expected benefits from changes in product mix and improved product pricing following the restructuring of the business during 2011, as well
as impairment levels coming back into line with historical loan loss rates.
A 20% reduction in forecasted profits from 2015 would extend the recovery period of the 2010 and 2011 losses by 2 years to 2023 and 2026,
respectively. A reduction in profits of more than this may result in a partial impairment of the deferred tax asset, depending upon the timing of the
reversal of deductible temporary differences. The forecast assumptions do not include any incremental tax planning strategies.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 215
The strategic report Governance Risk management Financial review Financial statements Shareholder information