HSBC 2004 Annual Report Download - page 41

39
Taxation
Year ended 31 December
2004 2003 2002
US$m US$m US$m
Current taxation
UK corporation tax charge ............................................................................ 716 547 684
Overseas taxation ......................................................................................... 2,856 2,590 1,217
Joint ventures ................................................................................................ 31(6)
Associates ..................................................................................................... 42 19 17
3,617 3,157 1,912
Deferred taxation
Origination and reversal of timing differences .............................................. 981 (5) 615
Effect of increased tax rate on opening asset ................................................ (15) (7) –
Adjustment in respect of prior periods .......................................................... (76) (25) 7
890 (37) 622
Total charge for taxation ............................................................................... 4,507 3,120 2,534
%%%
Effective tax rate .......................................................................................... 25.6 24.3 26.3
Standard UK corporation tax rate ................................................................. 30.0 30.0 30.0
Year ended 31 December
2004 2003 2002
US$m US$m US$m
Analysis of overall tax charge
Taxation at UK corporation tax rate of 30 per cent
(2003 and 2002: 30 per cent) .................................................................... 5,282 3,845 2,895
Effect of differently taxed overseas profits in principal locations ................. (347) (366) (472)
Tax free gains ............................................................................................... (64) (17) (19)
Goodwill amortisation not tax deductible ..................................................... 579 476 261
Acquisition accounting adjustments not tax effected .................................... (253) (331) –
Prior period adjustments ............................................................................... (229) (230) (90)
Tax deduction on innovative Tier 1 capital ................................................... (192) (117) (99)
Low income housing credits ......................................................................... (95) (72) –
Other items ................................................................................................... (174) (68) 58
Overall tax charge.......................................................................................... 4,507 3,120 2,534
Year ended 31 December 2004 compared
with year ended 31 December 2003
HSBC Holdings and its subsidiary undertakings in
the UK provided for UK corporation tax at 30 per
cent, the rate for the calendar year 2004 (2003:
30 per cent).
HSBC’ s effective tax rate of 25.6 per cent in
2004 was lower than the corporation tax rate of
30 per cent. The main factors which reduced the rate
were: the geographical mix of profits and, in
particular, the lower rate of tax on profits generated
in Hong Kong; fair value accounting adjustments,
which under UK GAAP affect pre-tax profits but are
ignored for tax purposes; the tax-deductibility of the
cost of servicing the Group’ s innovative Tier 1
capital, which under UK GAAP is shown as a
minority interest; and prior period adjustments,
which by definition are unrelated to earnings in the
current year. These were partially offset by the effect
of goodwill amortisation, which is also ignored for
tax purposes and therefore increases the effective tax
rate.
Overseas tax included Hong Kong profits tax of
US$539 million (2003: US$483 million) provided at
a rate of 17.5 per cent (2003: 17.5 per cent) on the
profits assessable in Hong Kong. Other overseas
taxation was provided for in the countries of
operation at the appropriate rates.
Profits arising in North America represented a
higher percentage of HSBC’s profits in 2004 than in
2003, largely because of the effect of an additional
quarter’s results of HSBC Finance Corporation. US
profits are taxed at a higher rate than the average for
the rest of the Group and this change in mix raised
the effective tax rate.
A number of fair value acquisition accounting
adjustments relating to HSBC Finance Corporation
and HSBC Mexico resulted in net credits to the
profit and loss account with no corresponding tax
charge. A more detailed explanation of the