HSBC 2004 Annual Report Download - page 42

HSBC HOLDINGS PLC
Financial Review (continued)
40
acquisition accounting adjustments is disclosed in
Note 7 of the ‘Notes on the Financial Statements’ .
Certain prior period adjustments arose in 2004
which reduced HSBC’s overall tax charge. These
related to the recognition of deferred tax assets on
losses, which became more likely to be utilised. The
Group also reached agreement on a number of
settlements in respect of outstanding matters on prior
year computations at a lower cost than had originally
been estimated in establishing provisions.
Goodwill amortisation was higher than in the
previous year, mainly due to an additional three
months charge for HSBC Finance Corporation.
At 31 December 2004, there were potential
future tax benefits of US$973 million (2003:
US$963 million). The potential benefits are in
respect of trading losses, allowable expenditure
charged to the profit and loss account but not yet
allowable for tax, and capital losses which have not
been recognised because realisation of the benefits is
not considered more likely than not.
Year ended 31 December 2003 compared
with year ended 31 December 2002
HSBC Holdings and its subsidiary undertakings in
the UK provided for UK corporation tax at 30 per
cent, the rate for the calendar year 2003 (2002:
30 per cent).
HSBC’s effective tax rate of 24.3 per cent in
2003 was lower than the corporation tax rate of
30 per cent. The geographic mix of profits; fair value
accounting adjustments, which are ignored for tax
purposes; and prior period adjustments were the
main factors which reduced the rate. These were
partially offset by the effect of goodwill
amortisation, which is also ignored for tax purposes
and which increased the rate.
Overseas tax included Hong Kong profits tax of
US$483 million (2002: US$408 million) provided at
a rate of 17.5 per cent (2002: 16 per cent) on the
profits assessable in Hong Kong. Other overseas
taxation was provided for in the countries of
operation at the appropriate rates of taxation.
Profits arising in North America represented a
higher percentage of HSBC’s profits in 2003
compared with 2002 largely because of the
acquisition of HSBC Finance Corporation. US
profits are taxed at a higher rate than the average for
the rest of the Group and this change in mix raised
the effective tax rate.
A number of fair value acquisition accounting
adjustments relating to HSBC Finance Corporation
and HSBC Mexico resulted in net credits to the
profit and loss account with no corresponding tax
charge. A more detailed explanation of the
acquisition accounting adjustments is disclosed in
Note 8 of the ‘Notes on the Financial Statements’ in
the 2003 Annual Report and Accounts.
Prior period adjustments arose in 2003 which
reduced HSBC’s overall tax charge. These related
mainly to the recognition of deferred tax assets on
losses, which became more likely to be utilised. The
Group also reached agreement on a number of
settlements in respect of outstanding matters on prior
year computations which allowed contingency
reserves to be released.
Goodwill amortisation was higher than in the
previous year, mainly due to the acquisition of
HSBC Finance Corporation.
At 31 December 2003, there were potential
future tax benefits of US$963 million (2002:
US$885 million). The potential benefits are in
respect of trading losses, allowable expenditure
charged to the profit and loss account but not yet
allowable for tax, and capital losses which had not
been recognised because realisation of the benefits
was not considered more likely than not.