XML 204 R17.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Tax
 12 Months Ended
Dec. 31, 2019
Income Taxes [Abstract]  
Tax
7
Tax
Tax expense


2019

2018

2017


Footnotes
$m

$m

$m

Current tax
1
3,768

4,195

4,264

– for this year

3,689

4,158

4,115

– adjustments in respect of prior years

79

37

149

Deferred tax

871

670

1,024

– origination and reversal of temporary differences

684

656

(228
)
– effect of changes in tax rates

(11
)
17

1,337

– adjustments in respect of prior years

198

(3
)
(85
)
Year ended 31 Dec
2
4,639

4,865

5,288

1
Current tax included Hong Kong profits tax of $1,413m (2018: $1,532m; 2017: $1,350m). The Hong Kong tax rate applying to the profits of subsidiaries assessable in Hong Kong was 16.5% (2018: 16.5%; 2017: 16.5%).
2
In addition to amounts recorded in the income statement, a tax charge of $6m (2018: credit of $234m) was recorded directly to equity.
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:
 
2019
2018
2017
 
$m

%

$m

%

$m

%

Profit before tax
13,347



19,890



17,167



Tax expense












Taxation at UK corporation tax rate of 19.00% (2018: 19.00%; 2017: 19.25%)
2,536

19.0

3,779

19.0

3,305

19.25

Impact of differently taxed overseas profits in overseas locations
253

1.9

264

1.3

407

2.3

Items increasing tax charge in 2019:












– non-deductible goodwill write-down
1,421

10.7

—

—

—

—

– local taxes and overseas withholding taxes
484

3.6

437

2.2

618

3.6

– other permanent disallowables
481

3.6

396

2.0

400

2.3

– non-deductible UK customer compensation
382

2.9

16

0.1

166

1.0

– UK tax losses not recognised
364

2.7

435

2.2

70

0.4

– adjustments in respect of prior period liabilities
277

2.1

34

0.2

64

0.4

– bank levy
184

1.4

191

1.0

180

1.0

– impacts of hyperinflation
29

0.2

78

0.4

—

—

– UK banking surcharge
29

0.2

229

1.1

136

0.8

– non-UK movements in unrecognised deferred tax
12

0.1

32

0.2

(16
)
(0.1
)
– non-deductible regulatory settlements
5

—

153

0.8

(132
)
(0.8
)
– deferred tax remeasurement due to US federal tax rate reduction
—

—

—

—

1,288

7.5

Items reducing tax charge in 2019:












– non-taxable income and gains
(844
)
(6.3
)
(691
)
(3.5
)
(766
)
(4.4
)
– effect of profits in associates and joint ventures
(467
)
(3.5
)
(492
)
(2.5
)
(481
)
(2.8
)
–  deductions for AT1 coupon payments
(263
)
(2.0
)
—

—

—

—

–  non-taxable gain on dilution of shareholding in SABB
(181
)
(1.3
)
—

—

—

—

– impact of changes in tax rates
(11
)
(0.1
)
17

0.1

49

0.3

– other items
(52
)
(0.4
)
(13
)
(0.1
)
—

—

Year ended 31 Dec
4,639

34.8

4,865

24.5

5,288

30.8

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 2019 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 20.90% (2018: 20.30%). The effective tax rate for the year was 34.8% (2018: 24.5%). The effective tax rate for 2019 was significantly higher than for 2018 as 2019 included a non-deductible impairment of goodwill of $7.3bn.
Following an amendment to IAS 12 effective 1 January 2019, the income tax consequences of distributions, including AT1 coupon payments, are recorded in the income statement tax expense. Prior periods have not been restated.
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

Fixed assets

Retirement obligations

Other

Total


Footnotes
$m

$m

$m

$m

$m

$m

$m

$m

$m

Assets

982

1,156

492

—

629

1,151

—

738

5,148

Liabilities

—

—

(376
)
(1,271
)
—

—

(1,387
)
(283
)
(3,317
)
At 1 Jan 2019

982

1,156

116

(1,271
)
629

1,151

(1,387
)
455

1,831

Income statement

45

266

(386
)
(303
)
(18
)
(185
)
(149
)
(141
)
(871
)
Other comprehensive income

—

—

544

—

—

—

30

(391
)
183

Equity

—

—

—

—

—

—

—

—

—

Foreign exchange and other adjustments

(44
)
(8
)
147

(47
)
39

36

(107
)
98

114

At 31 Dec 2019

983

1,414

421

(1,621
)
650

1,002

(1,613
)
21

1,257

Assets
2
983

1,414

979

—

650

1,002

—

422

5,450

Liabilities
2
—

—

(558
)
(1,621
)
—

—

(1,613
)
(401
)
(4,193
)




















Assets

713

1,373

1,282

—

643

1,201

352

760

6,324

Liabilities

—

—

(93
)
(1,182
)
—

—

(1,387
)
(968
)
(3,630
)
At 1 Jan 2018

713

1,373

1,189

(1,182
)
643

1,201

(1,035
)
(208
)
2,694

IFRS 9 transitional adjustment

358

—

(411
)
—

—

—

—

459

406

Income statement

(72
)
(203
)
51

(104
)
19

(68
)
35

(328
)
(670
)
Other comprehensive income

—

—

(722
)
—

—

—

25

165

(532
)
Equity

—

—

—

—

—

—

(15
)
(8
)
(23
)
Foreign exchange and other adjustments

(17
)
(14
)
9

15

(33
)
18

(397
)
375

(44
)
At 31 Dec 2018

982

1,156

116

(1,271
)
629

1,151

(1,387
)
455

1,831

Assets
2
982

1,156

492

—

629

1,151

—

738

5,148

Liabilities
2
—

—

(376
)
(1,271
)
—

—

(1,387
)
(283
)
(3,317
)
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 $4,632m (2018: $4,450m) and deferred tax liabilities $3,375m (2018: $2,619m).
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 $1.3bn (2018: $1.8bn) includes $2.8bn (2018: $3.0bn) of deferred tax assets relating to the US, of which $1.1bn relates to US tax losses that expire in 14 to 18 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 cover a five-year period and the forecasts have been extrapolated beyond five years by assuming that performance remains constant after the fifth year.
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 $8.3bn (2018: $7.2bn). This amount includes unused UK corporation tax losses of $6.2bn (2018: $4.6bn) which are not recognised due to uncertainty regarding the availability of sufficient future taxable profits against which to recover them. Of the total amounts unrecognised, $6.4bn (2018: $4.7bn) had no expiry date, $1.3bn (2018: $1.3bn) 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 $13.4bn (2018: $13.2bn) and the corresponding unrecognised deferred tax liability is $1.0bn (2018: $0.9bn).