Annual Report 2012

Notes to the financial statements(Expressed in millions of RMB, unless otherwise stated)4 Significant accounting policies and accounting estimates (continued)(21) Operating segments (continued)(d) Reclassification of held-to-maturity investmentsIn evaluating whether the requirements to classify a financial asset as held-to-maturity are met, management makes significantjudgements. Change of the Group in sustaining the intention and ability to hold specific investments until maturity may result inreclassification of the whole portfolio as available-for-sale.(e)Income taxesDetermining income tax provisions involves judgement on the future tax treatment of certain transactions. The Group carefullyevaluates the tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactionsis reconsidered periodically to take into account all changes in tax legislations. Deferred tax assets are recognised for taxlosses not yet used and temporary deductible differences. As those deferred tax assets can only be recognised to the extentthat it is probable that future taxable profits will be available against which the unused tax credits can be utilised, management’sjudgement is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed andadditional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax assetsto be recovered.(f)Employee retirement benefit obligationsThe Group has established liabilities in connection with benefits payable to certain retired employees. The amounts ofemployee benefit expense and these liabilities are dependent on assumptions used in calculating such amounts. Theseassumptions include discount rates, pension benefit inflation rates, medical benefit inflation rates, and other factors. Actualresults that differ from the assumptions are recognised to the extent that any cumulative unrecognised gains or lossesexceed 10% of the present value of the obligation at the end of each reporting period. While management believes that itsassumptions are appropriate, differences in actual experience or changes in assumptions may affect the Group’s expense andliability related to its employee retirement benefit obligations.5 TaxationThe Group’s main applicable taxes and tax rates are as follows:Business taxBusiness tax is charged at 5% on taxable income.City construction taxCity construction tax is calculated as 1% – 7% of business tax.Education surchargeEducation surcharge is calculated as 3% of business tax.Income taxThe income tax rate that is applicable to the Bank and its subsidiaries in Mainland China is 25%. Taxation on overseas operations ischarged at the relevant local rates. Tax paid on overseas operations is set off to the extent which is allowed under the relevant income taxlaws of the PRC. All tax exemptions are determined upon approval from the relevant tax authorities.Current liabilities arising from the above taxes are presented as “taxes payable” in the statement of financial position.114 China Construction Bank Corporation annual report 2012