Notes G-I

G: Acquisition costs and other expenditure

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2013 £m 2012* £m
Half year Half year Full year

* The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note B.

Acquisition costs incurred (1,185) (1,147) (2,557)
Acquisition costs deferred less amortisation of acquisition costs 419 376 595
Administration costs and other expenditure (2,127) (1,957) (3,863)
Movements in amounts attributable to external unit holders (422) (17) (207)
Total acquisition costs and other expenditure (3,315) (2,745) (6,032)

The acquisition costs as shown on the table above relate to policy acquisition costs. Acquisition costs from business combinations are included within other expenditure.

Included within total acquisition costs and other expenditure is depreciation of property plant and equipment of £(45) million (half year 2012: £(44) million; full year 2012: £(90) million).

The total amounts for acquisition costs and other expenditure shown above includes corporate expenditure shown in note C. The charge for corporate expenditure comprises:

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2013 £m 2012 £m
Half year Half year Full year
Group Head Office (87) (86) (168)
Asia Regional Office:  
Gross costs (58) (45) (99)
Recharges to Asia operations 17 11 36
(41) (34) (63)
Total (128) (120) (231)

H: Tax

i Tax charge

The total tax charge comprises:

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2013 £m 2012* £m
Half year Half year Full year
Tax charge Current tax Deferred tax Total Total Total

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B.

UK tax (77) (82) (159) (55) (421)
Overseas tax (68) (128) (196) (254) (533)
Total tax charge (145) (210) (355) (309) (954)

The current tax charge of £145 million includes £8 million for half year 2013 (half year 2012: charge of £7 million; full year 2012: charge of £17 million) in respect of the tax charge for Hong Kong. The 2012 comparative Hong Kong tax charges have been adjusted retrospectively for the application of the new joint venture accounting standards. The Hong Kong current tax charge is calculated as 16.5 per cent for all periods on either (i) 5 per cent of the net insurance premium or (ii) the estimated assessable profits, depending on the nature of the business written.

Until the end of 2012 for the Group’s UK life insurance companies, shareholders’ profits were calculated using regulatory surplus as a starting point, with appropriate deferred tax adjustments for IFRS. Beginning in 2013, under new UK life tax rules, shareholders’ profits are calculated using accounting profit or loss as a starting point.

The total tax charge comprises tax attributable to policyholders and unallocated surplus of with-profits funds, unit-linked policies and shareholders as shown below:

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2013 £m 2012* £m
Half year Half year Full year
Tax charge Current tax Deferred tax Total Total Total

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B.

Tax charge to policyholders' returns (80) (134) (214) (30) (370)
Tax charge attributable to shareholders' returns (65) (76) (141) (279) (584)
Total tax charge (145) (210) (355) (309) (954)

The principal reason for the increase in the tax charge attributable to policyholders’ returns compared to the six-month period ended June 2012 is tax on an increase in unrealised investment gains. An explanation of the tax charge attributable to shareholders is shown in note (iii) below.

ii Deferred tax

The statement of financial position contains the following deferred tax assets and liabilities:

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2013 £m 2012* £m
30 Jun 30 Jun   31 Dec
Deferred tax
assets
Deferred tax
liabilities
Deferred tax
assets
Deferred tax
liabilities
  Deferred tax
assets
Deferred tax
liabilities

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B.

Unrealised gains and losses on investments 261 (1,610) 204 (1,628)   100 (1,812)
Balances relating to investment and insurance contracts 10 (466) 22 (966)   1 (428)
Short-term timing differences 2,283 (2,019) 1,816 (1,307)   2,092 (1,715)
Capital allowances 16 (7) 12 (8)   15 (9)
Unused tax losses 67 115   98
Total 2,637 (4,102) 2,169 (3,909)   2,306 (3,964)

Deferred tax assets are recognised to the extent that they are regarded as recoverable, that is to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

The taxation regimes applicable across the Group often apply separate rules to trading and capital profits and losses. The distinction between temporary differences that arise from items of either a trading or capital nature may affect the recognition of deferred tax assets. Accordingly, for the 2013 half year results and financial position at 30 June 2013, the possible tax benefit of approximately £164 million (30 June 2012: £156 million; 31 December 2012: £158 million), which may arise from capital losses valued at approximately £0.8 billion (30 June 2012: £0.7 billion; 31 December 2012: £0.8 billion), is sufficiently uncertain that it has not been recognised. In addition, a potential deferred tax asset of £82 million (30 June 2012: £122 million; 31 December 2012: £122 million), which may arise from tax losses and other potential temporary differences totalling £0.4 billion (30 June 2012: £0.5 billion; 31 December 2012: £0.5 billion) is sufficiently uncertain that it has not been recognised. Of these, losses of £67 million will expire within the next 10 years. The remaining losses have no expiry date.

The two tables that follow provide a breakdown of the recognised deferred tax assets set out above for both the short-term timing differences and unused tax losses split by business unit. The table also shows the period of estimated recoverability for each respective business unit. For these and each category of deferred tax asset recognised their recoverability against forecast taxable profits is not significantly impacted by any current proposed changes to future accounting standards.

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Short-term timing differences Half year 2013
£m
Expected period of recoverability
Asia 31 1 to 3 years
JNL 1,984 With run-off of in-force book
UK long-term business 154 1 to 10 years
Other 114 3 to 10 years
Total 2,283

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Unused tax losses Half year 2013
£m
Expected period of recoverability
Asia 23 3 to 5 years
UK long-term business 14 1 to 3 years
Other 30 1 to 3 years
Total 67

Under IAS 12, ‘Income Taxes’, deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on the tax rates (and laws) that have been enacted or are substantively enacted at the end of the reporting periods.

As part of the Finance Act 2012, the UK government enacted a corporation tax rate change to 23 per cent with effect from 1 April 2013. Additionally, the reduction in the UK corporation tax rate to 21 per cent from 1 April 2014 and a further reduction to 20 per cent from 1 April 2015 was substantively enacted on 2 July 2013 in the 2013 Finance Bill, however, the effect of these changes has not been recognised in the half year 2013 financial results.

The subsequent proposed phased rate changes to 20 per cent is expected to have the effect of reducing the UK with-profits and shareholder-backed business element of the net deferred tax balances as at 30 June 2013 by £50 million.

iii Reconciliation of tax charge on profit attributable to shareholders for continuing operations

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Half year 2013 £m
Asia
insurance
operations*
US
insurance
operations
UK
insurance
operations

Other
operations
Total*

* For half year 2013, the expected and actual tax rates as shown includes the impact of the held for sale Japan Life business. The tax rates for Asia insurance operations and Group, excluding the impact of the held for sale Japan Life business are as follows:


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Asia insurance
operations
Total
Group
Expected tax rate 25% 26%
Actual tax rate:    
Operating profit based on longer-term investment returns 17% 24%
Total profit 17% 22%

† The expected tax rates shown in the table above (rounded to the nearest whole percentage) reflect the corporation tax rates generally applied to taxable profits of the relevant country jurisdictions. For Asia insurance operations the expected tax rates reflect the corporation tax rates weighted by reference to the source of profits of operations contributing to the aggregate business result. The expected tax rate for Other operations reflects the mix of business between UK and overseas non-insurance operations, which are taxed at a variety of rates. The rates will fluctuate from year to year dependent on the mix of profits.

Operating profit based on longer-term investment returns 474 582 356 3 1,415
Non-operating loss (264) (468) (147) (30) (909)
Profit (loss) before tax attributable to shareholders 210 114 209 (27) 506
Expected tax rate 17% 35% 23% 23% 23%
Tax at the expected tax rate 36 40 48 (6) 118
Effects of:          
Adjustment to tax charge in relation to prior years 4 1 6 11
Movement in provisions for open tax matters 1 (10) (9)
Income not taxable or taxable at concessionary rates (26) (37) (63)
Deductions not allowable for tax purposes 51 3 54
Deferred tax adjustments (2) (2)
Effect of results of joint ventures and associates (14) (3) (17)
Irrecoverable withholding taxes 6 6
Other 8 24 11 43
Total actual tax charge (credit) 58 27 60 (4) 141
Analysed into:          
Tax charge on operating profit based on longer-term investment returns 79 166 92 3 340
Tax credit on non-operating profit (21) (139) (32) (7) (199)
Actual tax rate:          
Operating profit based on longer-term investment returns 17% 29% 26% 100% 24%
Total profit 28% 24% 29% 15% 28%

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Half year 2012* £m
Asia insurance operations US insurance operations UK insurance operations Other operations Total

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B.

† The expected tax rates shown in the table above (rounded to the nearest whole percentage) reflect the corporation tax rates generally applied to taxable profits of the relevant country jurisdictions. For Asia insurance operations the expected tax rates reflect the corporation tax rates weighted by reference to the source of profits of operations contributing to the aggregate business result. The expected tax rate for Other operations reflects the mix of business between UK and overseas non-insurance operations, which are taxed at a variety of rates. The rates will fluctuate from year to year dependent on the mix of profits.

Operating profit (loss) based on longer-term investment returns 403 442 353 (41) 1,157
Non-operating profit (loss) 40 (125) 5 89 9
Profit before tax attributable to shareholders 443 317 358 48 1,166
Expected tax rate 24% 35% 24.5% 24.5% 27%
Tax at the expected tax rate 106 111 88 12 317
Effects of:
Adjustment to tax charge in relation to prior years 7 4 7 18
Movement in provisions for open tax matters 1 1
Income not taxable or taxable at concessionary rates (11) (37) 9 (39)
Deductions not allowable for tax purposes 6 6
Impact of changes in local statutory tax rates (16) 7 (9)
Deferred tax adjustments (2) 3 1
Effect of results of joint ventures and associates (12) (2) (14)
Irrecoverable withholding taxes 5 5
Other 2 (4) (4) (1) (7)
Total actual tax charge 96 71 81 31 279
Analysed into:          
Tax charge on operating profit based on longer-term investment returns 75 115 74 16 280
Tax charge (credit) on non-operating profit 21 (44) 7 15 (1)
Actual tax rate:
Operating profit (loss) based on longer-term investment returns 19% 26% 21% (39)% 24%
Total profit 22% 22% 23% 65% 24%

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Full year 2012* £m
Asia insurance operations US insurance operations UK insurance operations Other operations Total

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B.

† The expected tax rates shown in the table above (rounded to the nearest whole percentage) reflect the corporation tax rates generally applied to taxable profits of the relevant country jurisdictions. For Asia insurance operations the expected tax rates reflect the corporation tax rates weighted by reference to the source of profits of operations contributing to the aggregate business result. The expected tax rate for Other operations reflects the mix of business between UK and overseas non-insurance operations, which are taxed at a variety of rates. The rates will fluctuate from year to year dependent on the mix of profits.

Operating profit (loss) based on longer-term investment returns 906 964 736 (86) 2,520
Non-operating profit (loss) 71 (109) 136 129 227
Profit before tax attributable to shareholders 977 855 872 43 2,747
Expected tax rate 23% 35% 24.5% 24.5% 27%
Tax at the expected tax rate 225 300 214 11 750
Effects of:
Adjustment to tax charge in relation to prior years (14) 10 (26) (10) (40)
Movement in provisions for open tax matters (3) 32 29
Income not taxable or taxable at concessionary rates (68) (68) (2) (138)
Deductions not allowable for tax purposes 29 3 32
Impact of changes in local statutory tax rates (39) 9 (30)
Deferred tax adjustments (5) 8 3
Effect of results of joint ventures and associates (24) (5) (29)
Irrecoverable withholding taxes 14 14
Other 3 (5) 7 (12) (7)
Total actual tax charge 146 234 164 40 584
Analysed into:          
Tax charge on operating profit based on longer-term investment returns 133 272 126 36 567
Tax charge (credit) on non-operating profit 13 (38) 38 4 17
Actual tax rate:
Operating profit (loss) based on longer-term
investment returns
15% 28% 17% (42)% 23%
Total profit 15% 27% 19% 93% 21%

iv Taxes paid

During half year 2013, Prudential remitted £0.9 billion (30 June 2012: £1.0 billion; 31 December 2012: £2.2 billion) of tax to revenue authorities, this includes £182 million (30 June 2012: £348 million; 31 December 2012: £925 million) of corporation tax, £96 million of other taxes and £634 million collected on behalf of employees, customers and third parties.

The geographical split of taxes remitted by Prudential is as follows:

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2013 £m   2012 £m
Corporation taxes* Other taxes Taxes collected Half year Total   Half year Total Full year Total

* In certain countries such as the UK, the corporation tax payments for our life insurance businesses are based on taxable profits which include policyholder investment returns on certain life insurance products.

† Other taxes paid includes property taxes, withholding taxes, customs duties, stamp duties, employer payroll taxes and irrecoverable indirect taxes.

‡ Taxes collected are other taxes that Prudential remits to tax authorities which it is obliged to collect from employees, customers and third parties which includes sales/VAT/GST taxes, employee and annuitant payroll taxes.

§ In the first half of 2013, Asia and the US received refunds of overpaid tax in relation to prior period tax returns.

Asia§ 27 15 59 101   194 410
US§ (92) 9 186 103   126 470
UK 247 72 387 706   693 1,304
Other 2 2   2
Total tax paid 182 96 634 912   1,013 2,186

I: Supplementary analysis of earnings per share

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Half year 2013
Before tax
note C
£m
Tax
note H
£m
Non-
controlling
interests
£m
Net of tax
and non-
controlling
interests
£m
  Basic
earnings
per share
pence
Diluted
earnings
per share
pence
Based on operating profit based on longer-term investment returns 1,415 (340) 1,075   42.2p 42.1p
Short-term fluctuations in investment returns on shareholder-backed businessnote F (755) 189 (566)   (22.2)p (22.1)p
Amortisation of acquisition accounting adjustments (30) 10 (20)   (0.8)p (0.8)p
Loss attaching to held for sale Japan Life businessnote AB (124) (124)   (4.9)p (4.9)p
Based on profit for the period 506 (141) 365   14.3p 14.3p

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Half year 2012*
Before tax
note C
£m
Tax
note H
£m
Non-
controlling
interests
£m
Net of tax
and non-
controlling
interests
£m
  Basic
earnings
per share
pence
Diluted
earnings
per share
pence
Based on operating profit based on longer-term investment returns 1,157 (280) 877   34.6p 34.5p
Short-term fluctuations in investment returns on shareholder-backed businessnote F (47) 1 (46)   (1.8)p (1.8)p
Gain on dilution of holding in PPMSA 42 42   1.7p 1.7p
Profit attaching to held for sale Japan Life businessnote AB 14 14   0.5p 0.5p
Based on profit for the period 1,166 (279) 887   35.0p 34.9p

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Full year 2012*
Before tax
note C
£m
Tax
note H
£m
Non-
controlling
interests
£m
Net of tax
and non-
controlling
interests
£m
  Basic
earnings
per share
pence
Diluted
earnings
per share
pence

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B. The tables above therefore exclude actuarial and other gains and losses on defined benefit pension schemes which are now reported in Other Comprehensive Income. Further, in order to facilitate comparisons of operating profit based on longer-term investment returns that reflect the Group's retained operations, the results attributable to the held for sale Japan Life business are included separately within the supplementary analysis of profit.

Based on operating profit based on longer-term investment return 2,520 (567) 1,953   76.9p 76.8p
Short-term fluctuations in investment returns on shareholder-backed businessnote F 187 (24) 163   6.4p 6.4p
Gain on dilution of holding in PPMSA 42 42   1.7p 1.7p
Amortisation of acquisition accounting adjustments (19) 7 (12)   (0.5)p (0.5)p
Profit attaching to held for sale Japan Life businessnote AB 17 17   0.6p 0.6p
Based on profit for the year 2,747 (584) 2,163   85.1p 85.0p

Earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests.

The weighted average number of shares for calculating earnings per share:

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2013 2012
Half year
(in millions)
Half year
(in millions)
Full year
(in millions)
Weighted average number of shares for calculation of:  
Basic earnings per share 2,548 2,536 2,541
Diluted earnings per share 2,553 2,539 2,544
 
 

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