HSBC 2002 Annual Report Download - page 53

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US$408 million (2001: US$450 million) provided at
a rate of 16 per cent (2001: 16 per cent) on the profits
assessable in Hong Kong. Other overseas taxation
was provided for in the countries of operation at the
appropriate rates of taxation.
HSBC’s effective tax rate of 26.3 per cent in
2002 was higher than that for 2001 (24.9 per cent)
mainly as a result of the geographic mix of profits
and certain non-recurring items which occurred in
2001 and resulted in a reduction in the 2001 rate.
In particular, profits arising in North America
represented a higher percentage of HSBC’s profits in
2002 compared to 2001 because profits in the US
were abnormally suppressed in 2001 by the provision
relating to the Princeton Note settlement. US profits
are taxed at a higher rate than the average for the rest
of the group and thus this change in mix raised the
overall tax rate of the group.
One-off tax-free gains arising in 2002 were less
than those arising in 2001.
Partly offsetting these factors, no tax relief was
assumed in respect of the bad debt provision and
other losses relating to Argentina. These losses and
provisions were lower in 2002 than in 2001. This had
the effect of increasing the aggregate tax rate in both
2002 and 2001 but by a lesser degree in 2002.
In 2002, prior year adjustments mainly relating
to audit settlements, which resulted in a reduction in
the tax rate, were less than similar adjustments in
2001.
At 31 December 2002 there were potential
future tax benefits of US$885 million (2001: US$906
million) in respect of trading losses, allowable
expenditure charged to the profit and loss account
but not yet allowable for tax, and capital losses
which had not yet been recognised because
realisation of the benefits was not considered certain.
Year ended 31 December 2001 compared to
year ended 31 December 2000
HSBC Holdings and its subsidiary undertakings in
the United Kingdom provided for UK corporation
tax at 30 per cent, the rate for the calendar year 2001
(2000: 30 per cent).
Overseas tax included Hong Kong profits tax of
US$450 million (2000: US$478 million) provided at
a rate of 16 per cent (2000: 16 per cent) on the profits
assessable in Hong Kong. Other overseas taxation
was provided for in the countries of operation at the
appropriate rates of taxation.
HSBC’s effective tax rate of 24.9 per cent in
2001 was in line with that for 2000 (24.6 per cent)
although there were several factors either increasing
or reducing the rate.
Profits arising in North America represented a
lower percentage of HSBC’s profits in 2001
compared to 2000 because the profits in the US were
suppressed in 2001 by the provision relating to the
Princeton Note settlement. Because these profits are
taxed at a higher rate than the average for the rest of
the group this reduces the overall group tax rate in
2001.
One-off tax-free gains arose in 2001 and these
were greater than those arising in 2000.
No tax relief has been assumed for the 2001 bad
debt provision relating to Argentina. This increases
the 2001 tax rate.
In 2001 certain prior year adjustments mainly
relating to audit settlements resulted in a reduction in
the tax rate. There were similar adjustments in 2001
which resulted in a lower reduction in the tax rate.
At 31 December 2001 there were potential
future tax benefits of US$906m (2000: US$350m) in
respect of trading losses, allowable expenditure
charged to the profit and loss account but not yet
allowable for tax and capital losses which have not
yet been recognised because realisation of the
benefits is not considered certain.