Shareholders' Letter

15 Income taxes
In CHF million 2010 2009
Current income tax expense 424 342
Adjustments of current income tax expense of prior years 68 (3)
Deferred tax expense 10 121
Total income tax expense recognised in income statement 502 460
In addition, an income tax expense of CHF 271 million was recorded directly in other comprehensive
income (prior year: CHF 6 million) as follows:
In CHF million 2010 2009
Foreign currency translation adjustments of foreign subsidiaries 270 –
Change in fair value of available-for-sale financial assets – (1)
Gains and losses from available-for-sale financial assets
transferred to income statement – 1
Change in fair value of cash flow hedges 3 –
Gains and losses from cash flow hedges transferred to income statement (2) (6)
Total income taxes recognised in other comprehensive income 271 (6)
In 2010, as a result of lower foreign-exchange translation rates, valuation allowances on foreign
shareholdings were recorded in the stand-alone financial statements of Group companies which
were deducted for tax purposes. In consequence of the tax claim for the foreign currency-related
allowances recognised in the other comprehensive income income tax expense was decreased by
CHF 270 million.
The applicable income tax rate for the purposes of the following analysis of income tax expense
is the weighted average income tax rate calculated on the basis of the operating companies of the
Group in Switzerland. The applicable income tax rate is an unchanged 20.9%.
In CHF million 2010 2009 restated
lncome before income taxes 2,288 2,383
Applicable income tax rate 20.9% 20.9%
Income tax expense at the applicable income tax rate 478 498
Reconciliation to reported income tax expense
Effect of share of results of associated companies (6) (9)
Effect of tax rate changes on deferred taxes 4 8
Effect of use of different income tax rates in Switzerland (3) (12)
Effect of use of different income tax rates in foreign countries 9 13
Effect of non-recognition of tax loss carry-forwards 8 7
Effect of recognition and offset of income loss carry-forwards not recognised in prior years (23) (7)
Effect of initial recognition of deferred tax assets (52) –
Effect of deferred tax assets written off 54 2
Effect of exclusively tax-deductible expenses and income 20 (20)
Effect of non-taxable income and non-deductible expenses (1) (17)
Effect of income tax of prior periods 14 (3)
Total income tax expense 502 460
Effective income tax rate 21.9% 19.3%
Consolidated financial statements 170 | 171
Notes to the consolidated financial statements