Note 22

The Group made net tax payments, including domestic and foreign taxes, of CHF 3,663 million, CHF 2,607 million and CHF 2,394 million in 2007, 2006 and 2005 respectively.

The current tax expense for 2007 includes expenses related to prior years of CHF 493 million, of which CHF 517 million was offset by related deferred tax movements.

The components of operating profit before tax, and the differences between income tax expense reflected in the Financial Statements and the amounts calculated at the Swiss statutory rate, are as follows:

The change in the balance of net deferred tax assets and deferred tax liabilities does not equal the deferred tax expense in those years. This is mainly due to the effects of exchange rate changes on tax assets and liabilities denominated in currencies other than CHF and the booking of some of the tax benefits related to deferred compensation through Equity. For the above purposes, the valuation allowance represents amounts that are not expected to provide future benefits, either because they are offset against potential tax adjustments or due to insufficiency of future taxable income. The deferred tax assets recognized at 31 December 2007 were as follows: Compensation and benefits: CHF 385 million, Net operating loss carry-forwards: CHF 2,419 million, Trading assets: CHF 77 million and Other: CHF 150 million.

Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net operating loss carry-forwards and other items. Because realization of these assets is uncertain, the Group has established valuation allowances of CHF 10,599 million (CHF 1,799 million at 31 December 2006). For companies that suffered tax losses in either the current or preceding year, an amount of CHF 2,363 million (CHF 212 million at 31 December 2006) has been recognized as deferred tax assets based on expectations from profit forecasts and historical performance that sufficient taxable income will be generated in future years to utilize the tax loss carry-forwards.

The Group provides deferred income taxes on undistributed earnings of subsidiaries except to the extent that such earnings are indefinitely invested. At 31 December 2007, no such earnings were treated as indefinitely invested.

At 31 December 2007, net operating loss carry-forwards totalling CHF 19,283 million (not recognized as a deferred tax asset) are available to be offset against potential tax adjustments or future taxable income.