Tax

12 Months Ended

Dec. 31, 2019

Tax

27 Tax

Details of current and deferred taxes

in	2019	2018	2017
Current and deferred taxes (CHF million)
Switzerland	164	126	76
Foreign	518	416	420
Current income tax expense	682	542	496
Switzerland	194	266	285
Foreign	422	326	2,000
Deferred income tax expense	616	592	2,285
Income tax expense	1,298	1,134	2,781
Income tax expense/(benefit) reported in shareholder's equity related to:
Gains/(losses) on cash flow hedges	13	(28)	(24)
Cumulative translation adjustment	(4)	(7)	1
Unrealized gains/(losses) on securities	7	(5)	1
Actuarial gains/(losses)	4	7	(7)

Reconciliation of taxes computed at the Swiss statutory rate

in	2019	2018	2017
Income/(loss) before taxes (CHF million)
Switzerland	3,259	1,927	1,648
Foreign	1,134	929	(95)
Income before taxes	4,393	2,856	1,553
Reconciliation of taxes computed at the Swiss statutory rate (CHF million)
Income tax expense/(benefit) computed at the statutory tax rate of 22%	966	628	342
Increase/(decrease) in income taxes resulting from
Foreign tax rate differential	(109)	89	(92)
Non-deductible amortization of other intangible assets and goodwill impairment	1	3	0
Other non-deductible expenses	368	455	354
Additional taxable income	7	5	0
Lower taxed income	(314)	(187)	(272)
(Income)/loss taxable to noncontrolling interests	8	10	7
Changes in tax law and rates	9	(2)	2,095
Changes in deferred tax valuation allowance	114	(115)	88
Change in recognition of outside basis difference	4	(32)	(12)
Tax deductible impairments of Swiss subsidiary investments	0	(65)	88
(Windfall tax benefits)/shortfall tax charges on share-based compensation	39	10	91
Other	205	335	92
Income tax expense	1,298	1,134	2,781

2019

Foreign tax rate differential of CHF  109 million reflected a foreign tax benefit mainly driven by losses in higher tax jurisdictions, mainly in the UK, and profits incurred in lower tax jurisdictions, mainly in Singapore, partially offset by profits made in higher tax jurisdictions, such as Brazil. The foreign tax rate expense of CHF  940 million comprised not only the foreign tax expense based on statutory tax rates but also the tax impacts related to additional reconciling items as explained below.

Other non-deductible expenses of CHF  368 million included the impact of CHF  274 million relating to non-deductible interest expenses (including a contingency accrual of CHF  28 million), CHF  56 million relating to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF  34 million relating to non-deductible fines and various smaller non-deductible expenses.

Lower taxed income of CHF  314 million included a tax benefit of CHF  160 million related to the transfer of the InvestLab fund platform to Allfunds Group and SIX Group AG equity investment revaluation gain in Switzerland, CHF  73 million related to non-taxable life insurance income, CHF  45 million related to non-taxable dividend income, CHF  20 million related to concessionary and lower taxed income, CHF  14 million related to exempt income and various smaller items.

Changes in deferred tax valuation allowances of CHF  114 million included a tax charge from the increase in valuation allowances on deferred tax assets of CHF  272 million, mainly in respect of three of the Bank’s operating entities in Japan, the UK and the US. Also included was the net impact of the release of valuation allowances on deferred tax assets of CHF  158 million, mainly in respect of one of the Bank’s operating entities in the UK.

Other of CHF  205 million included CHF  165 million relating to the US base erosion and anti-abuse tax (BEAT) and CHF  123 million relating to the tax impact of transitional adjustments arising from the adoption of International Financial Reporting Standards (IFRS) 9 for own credit movements. This was partially offset by CHF 53 million relating to agreements reached with tax authorities relating to an advanced pricing agreement and the closure of a tax audit, and CHF 20 million relating to a prior year adjustment. The remaining balance included various smaller items.

2018

Foreign tax rate differential of CHF  89 million reflected a foreign tax expense mainly driven by profits made in higher tax jurisdictions, such as the US, partially offset by foreign tax rate differential related to profits incurred in lower tax jurisdictions, mainly in Singapore. The foreign tax rate expense of CHF  742 million comprised not only the foreign tax expense based on statutory tax rates but also the tax impacts related to additional reconciling items as explained below.

Other non-deductible expenses of CHF  455 million included the impact of CHF  325 million relating to non-deductible interest expenses (including a contingency accrual of CHF  92 million), CHF  49 million relating to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF  15 million relating to non-deductible fines and various smaller non-deductible expenses.

Lower taxed income of CHF  187 million included a tax benefit of CHF  66 million related to non-taxable dividend income, CHF  48 million related to non-taxable life insurance income, CHF  33 million related to concessionary and lower taxed income, CHF  23 million related to exempt income and various smaller items.

Changes in deferred tax valuation allowances of CHF  115 million included a tax benefit from the release of valuation allowances of CHF  191 million, mainly in respect of two of the Bank’s operating entities in the UK. Also included was the net impact of the increase in valuation allowances on deferred tax assets of CHF  76 million, mainly in respect of one of the Bank’s operating entities in Switzerland.

Other of CHF  335 million included CHF  202 million relating to the tax impact of transitional adjustments arising on first adoption of IFRS 9 for own credit movements, CHF  65 million relating to BEAT, CHF  56 million relating to the net re-assessment of deferred tax balances in respect of one of the Bank’s operating entities in Switzerland, CHF  26 million relating to the increase of tax contingency accruals and various smaller balances. This was partially offset by prior year adjustments of CHF  76 million.

2017

Foreign tax rate differential of CHF  92 million reflected a foreign tax benefit mainly driven by losses made in higher tax jurisdictions, such as the US, partially offset by foreign tax rate differential related to losses incurred in lower tax jurisdictions, mainly in Guernsey. The foreign tax rate expense of CHF  2,420 million comprised not only the foreign tax benefit based on statutory tax rates but also the tax impacts related to additional reconciling items as explained below.

Other non-deductible expenses of CHF  354 million included the impact of CHF  217 million relating to non-deductible interest expenses (including a contingency accrual of CHF  155 million), CHF  57 million related to the non-deductible portion of the litigation provisions and settlement charges, CHF  27 million related to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF  10 million related to non-deductible foreign exchange losses and various smaller non-deductible expenses of CHF  43 million.

Lower taxed income of CHF  272 million included a tax benefit of CHF  86 million related to non-taxable life insurance income, CHF  78 million related to non-taxable dividend income, CHF  31 million in respect of income taxed at rates lower than the statutory tax rate, CHF  25 million related to exempt income and various smaller items.

Changes in tax law and rates of CHF  2,095 million mainly reflected the impact of the US tax reform enacted on December 22, 2017 which resulted in a reduction of the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The US tax reform required a re-assessment of the deferred tax assets.

Changes in deferred tax valuation allowances of CHF  88 million included the net impact of the increase in valuation allowances on deferred tax assets of CHF  285 million, mainly in respect of two of the Bank’s operating entities in the UK. Also included was a tax benefit from the release of valuation allowances of CHF  197 million, mainly in respect of two of the Bank’s operating entities, one in the UK and one in Switzerland.

Other of CHF  92 million included a tax expense of CHF  231 million relating to the net re-assessment of deferred tax balances in respect of two of the Bank’s operating entities in Switzerland reflecting the establishment of Credit Suisse Asset Management & Investor Services (Schweiz) Holding AG, the impact of adverse earnings mix of the current year and changes in forecasted future profitability, CHF  26 million relating to the increase of tax contingency accruals and CHF  17 million from prior year adjustments, partially offset by CHF  85 million relating to tax deductibility of previously taken litigation accruals and CHF  49 million from a

favorable court decision. The remaining balance included various smaller items.

As of December 31, 2019, the Bank had accumulated undistributed earnings from foreign subsidiaries of CHF  17.2 billion compared to CHF  9.1 billion as of December 31, 2018. The increase compared to the end of 2018 reflected a reserve transfer in one of the Bank’s entities. No deferred tax liability was recorded in respect of those amounts as these earnings are considered indefinitely reinvested. It is not practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings.

Deferred tax assets and liabilities

end of	2019	2018
Deferred tax assets and liabilities (CHF million)
Compensation and benefits	950	944
Loans	341	192
Investment securities	1,437	1,986
Provisions	769	582
Leases	302	–
Derivatives	72	65
Real estate	183	278
Net operating loss carry-forwards	5,657	6,142
Goodwill and intangible assets	394	497
Other	66	197
Gross deferred tax assets before valuation allowance	10,171	10,883
Less valuation allowance	(4,067)	(3,957)
Gross deferred tax assets net of valuation allowance	6,104	6,926
Compensation and benefits	(301)	(257)
Loans	(108)	(87)
Investment securities	(502)	(1,170)
Provisions	(336)	(368)
Business combinations	0	(1)
Leases	(267)	–
Derivatives	(214)	(214)
Real estate	(35)	(56)
Other	(171)	(154)
Gross deferred tax liabilities	(1,934)	(2,307)
Net deferred tax assets	4,170	4,619
of which deferred tax assets	4,337	4,887
of which net operating losses	1,437	1,632
of which deductible temporary differences	2,900	3,255
of which deferred tax liabilities	(167)	(268)

The decrease in net deferred tax assets from 2018 to 2019 of CHF  449 million was primarily due to the impact of CHF  530 million related to current year earnings and CHF  87 million from the re-assessment of deferred tax balances in Japan and foreign exchange translation losses of CHF  64 million, which are included within the currency translation adjustments recorded in accumulated other comprehensive income/(loss) (AOCI). These decreases were partially offset by the tax impacts directly recorded in equity and other comprehensive income of CHF  232 million, mainly related to own credit movements, partially offset by a pension plan re-measurement.

The most significant net deferred tax assets arise in the US and Switzerland, which decreased from CHF  4,175 million, net of a valuation allowance of CHF  584 million as of the end of 2018, to CHF  3,855 million, net of a valuation allowance of CHF  606 million as of the end of 2019.

Due to uncertainty concerning its ability to generate the necessary amount and mix of taxable income in future periods, the Bank recorded a valuation allowance against deferred tax assets in the amount of CHF  4.1 billion as of December 31, 2019, compared to CHF  4.0 billion as of December 31, 2018.

Amounts and expiration dates of net operating loss carry-forwards

end of 2019	Total
Net operating loss carry-forwards (CHF million)
Due to expire within 1 year	8
Due to expire within 2 to 5 years	6,980
Due to expire within 6 to 10 years	3,350
Due to expire within 11 to 20 years	6,172
Amount due to expire	16,510
Amount not due to expire	17,634
Total net operating loss carry-forwards	34,144

Movements in the valuation allowance

in	2019	2018	2017
Movements (CHF million)
Balance at beginning of period	3,957	4,224	4,168
Net changes	110	(267)	56
Balance at end of period	4,067	3,957	4,224

Tax benefits associated with share-based compensation

in	2019	2018	2017
Tax benefits (CHF million)
Tax benefits recorded in the consolidated statements of operations  1	256	236	310
1 Calculated at the statutory tax rate before valuation allowance considerations.

> Refer to “Note 28 – Employee deferred compensation” for further information on share-based compensation.

Uncertain tax positions

Reconciliation of gross unrecognized tax benefits

in	2019	2018	2017
Movements in gross unrecognized tax benefits (CHF million)
Balance at beginning of period	574	481	401
Increases in unrecognized tax benefits as a result of tax positions taken during a prior period	27	10	131
Decreases in unrecognized tax benefits as a result of tax positions taken during a prior period	(64)	(2)	(95)
Increases in unrecognized tax benefits as a result of tax positions taken during the current period	105	112	117
Decreases in unrecognized tax benefits relating to settlements with tax authorities	0	0	(73)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(35)	(4)	(3)
Other (including foreign currency translation)	(12)	(23)	3
Balance at end of period	595	574	481
of which, if recognized, would affect the effective tax rate	595	574	481

Interest and penalties

in	2019	2018	2017
Interest and penalties (CHF million)
Interest and penalties recognized in the consolidated statements of operations	(10)	(28)	30
Interest and penalties recognized in the consolidated balance sheets	77	87	115

Interest and penalties are reported as tax expense. The Bank is currently subject to ongoing tax audits, inquiries and litigation with the tax authorities in a number of jurisdictions, including Brazil, the Netherlands, the US, the UK and Switzerland. Although the timing of completion is uncertain, it is reasonably possible that some of these will be resolved within 12 months of the reporting date. It is reasonably possible that there will be a decrease of between zero and CHF  303 million in unrecognized tax benefits within 12 months of the reporting date.

The Bank remains open to examination from federal, state, provincial or similar local jurisdictions from the following years onward in these major countries: Brazil – 2014; the UK – 2012; Switzerland – 2011; the US – 2010; and the Netherlands – 2006.

> Refer to “Note 28 – Tax” in VI – Consolidated financial statements – Credit Suisse Group for further information.