XML 248 R18.htm IDEA: XBRL DOCUMENT v3.10.0.1
Tax
 12 Months Ended
Dec. 31, 2018
Income Taxes [Abstract]  
Tax
8
Tax
Tax expense


2018

2017

2016


Footnotes
$m

$m

$m

Current tax
1
4,195

4,264

3,669

– for this year

4,158

4,115

3,525

– adjustments in respect of prior years

37

149

144

Deferred tax

670

1,024

(3
)
– origination and reversal of temporary differences

656

(228
)
(111
)
– effect of changes in tax rates

17

1,337

(4
)
– adjustments in respect of prior years

(3
)
(85
)
112

Year ended 31 Dec

4,865

5,288

3,666

1
Current tax included Hong Kong profits tax of $1,532m (2017: $1,350m; 2016: $1,118m). The Hong Kong tax rate applying to the profits of subsidiaries assessable in Hong Kong was 16.5% (2017: 16.5%; 2016: 16.5%).
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:
 
2018
2017
2016
 
$m

%

$m

%

$m

%

Profit before tax
19,890

 
17,167

 
7,112

 
Tax expense
 
 
 
 
 
 
Taxation at UK corporation tax rate of 19.00% (2017: 19.25%; 2016: 20.0%)
3,779

19.00

3,305

19.25

1,422

20.00

Impact of differently taxed overseas profits in overseas locations
264

1.3

407

2.3

43

0.6

Items increasing tax charge in 2018:
 
 
 
 
 
 
– local taxes and overseas withholding taxes
437

2.2

618

3.6

434

6.1

– UK tax losses not recognised
435

2.2

70

0.4

305

4.3

– other permanent disallowables
396

2.0

400

2.3

438

6.2

– UK banking surcharge
229

1.1

136

0.8

199

2.8

– bank levy
191

1.0

180

1.0

170

2.4

– non-deductible regulatory settlements
153

0.8

(132
)
(0.8
)
20

0.3

– impacts of hyperinflation
78

0.4

—

—

—

—

– adjustments in respect of prior period liabilities
34

0.2

64

0.4

256

3.6

– non-UK tax losses not recognised
32

0.2

33

0.2

147

2.1

– change in tax rates
17

0.1

49

0.3

(4
)
(0.1
)
– non-deductible UK customer compensation
16

0.1

166

1.0

162

2.3

– deferred tax remeasurement due to US federal tax rate reduction
—

—

1,288

7.5

—

—

– non-deductible goodwill write-down
—

—

—

—

648

9.1

– non-deductible loss and taxes suffered on Brazil disposal
—

—

—

—

464

6.5

Items reducing tax charge in 2018:
 
 
 
 
 
 
– non-taxable income and gains
(691
)
(3.5
)
(766
)
(4.4
)
(577
)
(8.1
)
– effect of profits in associates and joint ventures
(492
)
(2.5
)
(481
)
(2.8
)
(461
)
(6.5
)
– other items
(13
)
(0.1
)
—

—

—

—

– other deferred tax temporary differences previously not recognised
—

—

(49
)
(0.3
)
—

—

Year ended 31 Dec
4,865

24.5

5,288

30.8

3,666

51.6

The Group’s profits are taxed at different rates depending on the country or territory in which the profits arise. The key applicable tax rates for 2018 include Hong Kong (16.5%), the US (21%) and the UK (19%). If the Group’s profits were taxed at the statutory rates of the countries in which the profits arose, then the tax rate for the year would have been 20.30% (2017: 21.15%). The effective tax rate for the year was 24.5% (2017: 30.8%). The effective tax rate for 2018 was significantly lower than for 2017 as 2017 included a charge of $1.3bn relating to the remeasurement of US deferred tax balances to reflect the reduction in the US federal tax rate to 21% from 2018.
Accounting for taxes involves some estimation because the tax law is uncertain and its 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.
Movement of deferred tax assets and liabilities
 
 
Loan
impairment
provisions

Unused tax
losses and
tax credits

Derivatives,
FVOD1
and other
investments

Insurance
business

Expense
provisions

Other

Total

 
Footnotes
$m

$m

$m

$m

$m

$m

$m

Assets
 
713

1,373

1,282

—

643

2,313

6,324

Liabilities
 
—

—

(93
)
(1,182
)
—

(2,355
)
(3,630
)
At 1 Jan 2018
 
713

1,373

1,189

(1,182
)
643

(42
)
2,694

IFRS 9 transitional adjustment

358

—

(411
)
—

—

459

406

Income statement
 
(72
)
(203
)
51

(104
)
19

(361
)
(670
)
Other comprehensive income
 
—

—

(722
)
—

—

190

(532
)
Equity
 
—

—

—

—

—

(23
)
(23
)
Foreign exchange and other adjustments
 
(17
)
(14
)
9

15

(33
)
(4
)
(44
)
At 31 Dec 2018
 
982

1,156

116

(1,271
)
629

219

1,831

Assets
2
982

1,156

492

—

629

1,889

5,148

Liabilities
2
—

—

(376
)
(1,271
)
—

(1,670
)
(3,317
)
 
 
 
 
 
 
 
 
 
Assets
 
950

2,212

1,441

—

893

1,857

7,353

Liabilities
 
—

—

(274
)
(1,170
)
—

(1,369
)
(2,813
)
At 1 Jan 2017
 
950

2,212

1,167

(1,170
)
893

488

4,540

Income statement
 
(235
)
(873
)
(397
)
12

(269
)
738

(1,024
)
Other comprehensive income
 
3

(6
)
368

—

—

(1,255
)
(890
)
Equity
 
—

—

—

—

—

29

29

Foreign exchange and other adjustments
 
(5
)
40

51

(24
)
19

(42
)
39

At 31 Dec 2017
 
713

1,373

1,189

(1,182
)
643

(42
)
2,694

Assets
2
713

1,373

1,282

—

643

2,313

6,324

Liabilities
2
—

—

(93
)
(1,182
)
—

(2,355
)
(3,630
)
1
Fair value of own debt.
2
After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets $4,450m (2017: $4,676m) and deferred tax liabilities $2,619m (2017: $1,982m).
In applying judgement in recognising deferred tax assets, management has critically assessed all available information, including future business profit projections and the track record of meeting forecasts.
The net deferred tax asset of $1.8bn (2017: $2.7bn) includes $3.0bn (2017: $3.2bn) of deferred tax assets relating to the US, of which $1bn relates to US tax losses that expire in 15–19 years. Management expects the US deferred tax asset to be substantially recovered in six to seven years, with the majority recovered in the first five years. The most recent financial forecasts approved by management covers a five-year period and the forecasts have been extrapolated beyond five years by assuming that performance remains constant after the fifth year.
US tax reform enacted in late 2017 and effective from 2018 included a reduction in the federal rate of tax from 35% to 21% and the introduction of a base erosion anti-abuse tax. The US deferred tax asset at 31 December 2017 was calculated using the rate of 21%. The remeasurement of the deferred tax asset due to the reduction in tax rate resulted in charges of $1.3bn to the income statement and $0.3bn to other comprehensive income during 2017. The impact of the base erosion anti-abuse tax is currently uncertain, and will depend on the finalisation of regulatory guidance and the actions management may take. It is not currently expected that the base erosion anti-abuse tax will have a material impact on the Group’s future tax charges.
Unrecognised deferred tax
The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance sheet was $8.9bn (2017: $18.1bn). These amounts included unused state losses arising in the Group’s US operations of $0.8bn (2017: $12.3bn). Of the total amounts unrecognised, $7.0bn (2017: $4.8bn) had no expiry date, $1.3bn (2017: $0.8bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after 10 years.
Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where HSBC is able to control the timing of remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $13.2bn (2017: $12.1bn) and the corresponding unrecognised deferred tax liability is $0.9bn (2017: $0.8bn).