RBS 2013 Annual Report Download - page 456
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Notes on the consolidated accounts
454
23 Deferred tax continued
UK tax losses
Under UK tax rules, tax losses do not expire and can be carried forward
indefinitely.
The Royal Bank of Scotland plc - the deferred tax asset in respect of tax
losses brought forward at 1 January 2013 related mainly to trading losses
that arose in the UK branch of RBS N.V. These were transferred
following the transfer of the majority of the activities of the UK branch of
RBS N.V. to The Royal Bank of Scotland plc. 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 tax
losses in 2012 and 2013. The taxable loss for 2012 reflected the reversal
of previous own credit gains offset by core banking profitability. In 2013,
core profitability remains strong; the UK tax losses of £3 billion are
attributable to the loan impairment charges arising from the RCR
accelerated recovery strategy recorded in the final quarter of the year and
significant regulatory and conduct provisions. The additional restructuring
costs anticipated by the latest strategic plan will constrain the utilisation of
carried forward tax losses in the near-term. Consequently a reduction in
the carrying value of deferred tax assets of £701 million has been
recorded in 2013. In addition, deferred tax has not been recognised in
respect of excess 2013 UK taxable losses of £750 million, representing
an unprovided deferred tax asset of £150 million. The Group expects that
the recognised deferred tax asset in respect of tax losses amounting to
£8,465 million will be recovered within eight years. A 20% reduction in
forecast profits would extend the recovery period by a year.
National Westminster Bank Plc - the deferred tax asset in respect of tax
losses at 31 December 2013 relates to residual unrelieved trading losses
that arose between 2009 and 2013. 60% 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 2018. A 20% reduction in forecast profits would extend the
recovery period by one year.
Overseas tax losses
Ulster Bank Ireland - a deferred tax asset has been recognised in respect
of £592 million of total tax losses of £11,575 million carried forward at 31
December 2013. 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 2018. A 20% reduction in
forecast profits would extend the recovery period by one year.
RBS Citizens Financial Group - a deferred tax asset of £11 million has
been recognised in respect of total tax losses of £32 million carried
forward at 31 December 2013. 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 in 2014. A 20% reduction in forecast profits
would not extend the recovery period beyond 2014.
Unrecognised deferred tax
Deferred tax assets of £4,942 million (2012 - £3,827 million; 2011 -
£3,246 million) have not been recognised in respect of tax losses carried
forward of £28,099 million (2012 - £20,432 million; 2011 - £16,691
million) in jurisdictions where doubt exists over the availability of future
taxable profits. Of these losses, £187 million expire within one year,
£1,901 million within five years and £8,673 million thereafter. The balance
of tax losses carried forward has no time limit.
Deferred tax liabilities of £186 million (2012 - £214 million; 2011 - £249
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 overseas dividends received on or after 1 July 2009 from UK
tax.
24 Subordinated liabilities
2013 2012 2011
£m £m £m
Dated loan capital 17,597 20,210 19,654
Undated loan capital 5,376 5,488 5,549
Preference shares 1,039 1,075 1,116
24,012 26,773 26,319
In March 2012, the Group exchanged certain subordinated debt
securities for new subordinated debt securities. The exchanges involving
instruments classified as liabilities all met the criteria in IFRS for
treatment as the extinguishment of the original liability and the recognition
of a new financial liability.
The Group has now resumed payments on all discretionary non-equity
capital instruments following the end of the European Commission ban in
2012 for RBSG and 2013 for RBS N.V. Future coupons and dividends on
hybrid capital instruments will only be paid subject to, and in accordance
with, the terms of the relevant instruments.
Certain preference shares issued by the company are classified as
liabilities; these securities remain subject to the capital maintenance rules
of the Companies Act 2006.