RBS 2012 Annual Report Download - page 435

RBS GROUP 2012
433
UK tax losses
Under UK tax rules, tax losses do not expire and can be carried forward
indefinitely.
The Royal Bank of Scotland plc and the UK branch of RBS N.V.- the
deferred tax assets in respect of tax losses brought forward at 1 January
2012 relate wholly to trading losses that arose in the UK branch of RBS
N.V. Some were transferred on 1 January 2011 following the transfer of
the majority of the activities of the UK Branch of RBS N.V. to The Royal
Bank of Scotland plc and the balance is expected to transfer once the
remaining activities have been transferred. The UK Branch tax losses
attributable to credit market write-downs during the financial crisis were
principally incurred between 2007 and 2009.
The Royal Bank of Scotland plc reported a taxable profit in 2011 and a
tax loss in 2012. The tax loss in 2012 reflects the reversal of previous
own credit gains offset by core banking profitability. Based on the Group’s
strategic plan, all of the carried forward losses will be substantially utilised
against future taxable profits of The Royal Bank of Scotland plc by the
end of 2018. A 20% reduction in forecast profits would extend the
recovery period by one year to 2019.
National Westminster Bank Plc - the deferred tax asset in respect of tax
losses at 31 December 2012 relates to residual unrelieved trading losses
that arose between 2009 and 2012. 95% of the losses that arose were
relieved against taxable profits arising in other UK Group companies.
Based on the Group’s strategic plan, the residual carried forward losses
will be fully utilised against future taxable profits of the company by the
end of 2015. A 20% reduction in forecast profits would extend the
recovery period by one year to 2016.
Overseas tax losses
Ulster Bank Ireland - a deferred tax asset has been recognised in respect
of £575 million of total tax losses of £7,627 million carried forward at 31
December 2012. These losses arose principally as a result of significant
impairment charges reflecting deteriorating economic conditions in the
Republic of Ireland. Impairment charges are expected to reduce in the
future. Based on the Group’s strategic plan, the losses on which a
deferred tax asset has been recognised will be utilised against future
taxable profits of the company by the end of 2019. A 20% reduction in
forecast profits would extend the recovery period by one year to 2020.
RBS Citizens Financial Group - a deferred tax asset of £87 million has
been recognised in respect of total tax losses of £239 million carried
forward at 31 December 2012. The losses on which a deferred tax asset
has been recognised will be utilised against future taxable profits in 2013.
A 20% reduction in forecast profits would not extend the recovery period
beyond 2013.
Unrecognised deferred tax
Deferred tax assets of £3,827 million (2011 - £3,246 million; 2010 -
£2,008 million) have not been recognised in respect of tax losses carried
forward of £20,432 million (2011 - £16,691 million; 2010 - £9,869 million)
in jurisdictions where doubt exists over the availability of future taxable
profits. Of these losses, £37 million expire within one year, £1 million
within five years and £11,068 million thereafter. The balance of tax losses
carried forward has no time limit.
Deferred tax liabilities of £214 million (2011 - £249 million; 2010 - £279
million) have not been recognised in respect of retained earnings of
overseas subsidiaries and held-over gains on the incorporation of
overseas branches. Retained earnings of overseas subsidiaries are
expected to be reinvested indefinitely or remitted to the UK free from
further taxation. No taxation is expected to arise in the foreseeable future
in respect of held-over gains. Changes to UK tax legislation largely
exempts from UK tax, overseas dividends received on or after 1 July
2009.
Tax loss waiver
On 26 November 2009, the company entered into three agreements
(together comprising the tax loss waiver) which provide the right, at the
company’s option, subject to HM Treasury consent, to satisfy all or part of
the annual fee in respect of the asset protection scheme (APS) or the
contingent subscription arrangement, and the exit fee payable in
connection with any termination of the Group’s participation in the APS
(but not the refund of the net payments it has received from HM Treasury
under the APS), by waiving entitlement to relief for certain UK tax losses
carried forward (principally tax losses carried forward under s393 of the
Income and Corporation Taxes Act 1988 (now s45 of the Corporation Tax
Act 2009)) recognised as deferred tax assets. The tax loss waiver
contains undertakings designed to prevent the Group from engaging in
arrangements which have a main purpose of reducing the net cost to the
Group of any waiver of tax reliefs pursuant to the tax loss waiver. The
Group has not satisfied any fees in respect of the APS or the Contingent
Subscription arrangement by way of tax loss waiver. The Group exited
the APS on 18 October 2012.