Notes on the EEV basis results
7. Effect of changes in corporate tax rates
At 30 June 2007, a change to reduce the UK corporate tax rate from 30 per cent to 28 per cent in 2008 had been substantively enacted
in the legislative process. Accordingly, the half year 2007 results incorporate the effects of this change in projecting the tax cash flows
attaching to in-force business. Under the convention applied for EEV basis reporting, profits are generally determined on a post-tax basis
and then grossed up at the prevailing corporate tax rates to derive pre-tax results. The effect of the change in the UK rate is to give rise
to a benefit to the value of business in force at 1 January 2007 of £48 million. After grossing up this amount for notional tax, the effect
on the pre-tax operating results based on longer-term investment returns for UK insurance operations for half year 2007 is a credit
of £67 million.
Similar considerations apply to corporate tax rate changes in Singapore and China, giving rise to a benefit to the value of in-force business
at 1 January 2007 of £20 million. After grossing up this amount for notional tax, the effect on the pre-tax operating results based on
longer-term investment returns for Asian operations for half year 2007 is a credit of £25 million.
