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Taxation | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Taxation | Taxation Under Swiss law through December 31, 2019, a resident company is subject to income tax at the federal, cantonal, and communal levels that is levied on net worldwide income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. Chubb Limited is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, Chubb Limited is subject to Swiss income tax only at the federal level. Furthermore, participation relief (i.e., tax relief) is granted to Chubb Limited at the federal level for qualifying dividend income and capital gains related to the sale of qualifying participations (i.e., subsidiaries). It is expected that the participation relief will result in a full exemption of participation income from federal income tax. Chubb Limited is subject to an annual cantonal and communal capital tax on the taxable equity of Chubb Limited in Switzerland. Chubb has two Swiss operating subsidiaries, an insurance company, Chubb Insurance (Switzerland) Limited and a reinsurance company, Chubb Reinsurance (Switzerland) Limited. Both are subject to federal, cantonal, and communal income tax and to annual cantonal and communal capital tax. Under current Bermuda law, Chubb Limited and its Bermuda subsidiaries are not required to pay any taxes on income or capital gains. If a Bermuda law were enacted that would impose taxes on income or capital gains, Chubb Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation until March 2035. Income from Chubb's operations at Lloyd's is subject to United Kingdom (U.K.) corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income (U.S. income) written by Lloyd's syndicates. Lloyd's has a closing agreement with the Internal Revenue Service (IRS) whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the accounts of Chubb's Corporate Members in proportion to their participation in the relevant syndicates. Chubb's Corporate Members are subject to this arrangement but, as U.K. domiciled companies, will receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income tax charge on the U.S. income. Chubb Group Holdings and its respective subsidiaries are subject to income taxes imposed by U.S. authorities and file a consolidated U.S. Federal income tax return. Should Chubb Group Holdings pay a dividend to Chubb Limited, withholding taxes would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management has no intention of remitting these earnings. Similarly, no taxes have been provided on the un-remitted earnings of certain foreign subsidiaries (Hong Kong and Korea life companies) as management has no intention of remitting these earnings. The cumulative amount that would be subject to withholding tax, if distributed, as well as the determination of the associated tax liability are not practicable to compute; however, such amount would be material. Certain international operations of Chubb are also subject to income taxes imposed by the jurisdictions in which they operate. Chubb's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered. The following table presents pre-tax income and the related provision for income taxes:
| Year Ended December 31 |
(in millions of U.S. dollars) | 2019 |  |  | 2018 |  |  | 2017 |
Pre-tax income: |  |  |  |  |
Switzerland | $ | 440 |  |  | $ | 950 |  |  | $ | 527 |
Outside Switzerland | 4,809 |  |  | 3,707 |  |  | 3,195 |
Total pre-tax income | $ | 5,249 |  |  | $ | 4,657 |  |  | $ | 3,722 |
Provision for income taxes |  |  |  |  |
Current tax expense: |  |  |  |  |
Switzerland | $ | 29 |  |  | $ | 89 |  |  | $ | 46 |
Outside Switzerland | 879 |  |  | 563 |  |  | 313 |
Total current tax expense | 908 |  |  | 652 |  |  | 359 |
Deferred tax expense (benefit): |  |  |  |  |
Switzerland | 11 |  |  | 3 |  |  | 2 |
Outside Switzerland | (124 | ) |  | 40 |  |  | (500 | )
Total deferred tax expense (benefit) | (113 | ) |  | 43 |  |  | (498 | )
Provision for income taxes | $ | 795 |  |  | $ | 695 |  |  | $ | (139 | )
The most significant jurisdictions contributing to the overall taxation of Chubb are calculated using the following rates in 2019: Switzerland 7.83 percent, Bermuda 0.0 percent, U.S. 21.0 percent, and U.K. 19.0 percent. The following table presents a reconciliation of the difference between the provision for income taxes and the expected tax provision at the Swiss statutory income tax rate:
| Year Ended December 31 |
(in millions of U.S. dollars) | 2019 |  |  | 2018 |  |  | 2017 |
Expected tax provision at Swiss statutory tax rate | $ | 411 |  |  | $ | 365 |  |  | $ | 291 |
Permanent differences: |  |  |  |  |
Taxes on earnings subject to rate other than Swiss statutory rate | 376 |  |  | 372 |  |  | 263 |
Tax-exempt interest and dividends received deduction, net of proration | (49 | ) |  | (75 | ) |  | (199 | )
Net withholding taxes | 40 |  |  | 33 |  |  | 30 |
Excess tax benefit on share-based compensation | (12 | ) |  | (19 | ) |  | (48 | )
Impact of 2017 Tax Act | — |  |  | (25 | ) |  | (450 | )
Corporate owned life insurance | (13 | ) |  | 2 |  |  | (37 | )
Other | 42 |  |  | 42 |  |  | 11 |
Provision for income taxes | $ | 795 |  |  | $ | 695 |  |  | $ | (139 | )
The 2017 Tax Act, enacted in December 2017, among other things, reduced the U.S. Federal income tax rate from 35 percent to 21 percent effective in 2018. In the fourth quarter of 2017, we recorded a $450 million income tax benefit on a provisional basis, and an additional $25 million in 2018, principally reflecting this reduction in the U.S. corporate tax rate from 35 percent to 21 percent. Our final $475 million income tax benefit was comprised of a $743 million reduction in the deferred tax liabilities principally related to certain intangible assets, a $250 million reduction in net deferred tax assets related to other net assets, a net charge of $18 million related to the impact of excess foreign tax credits, withholding taxes associated with unremitted earnings and the impact of the reduced rate on our foreign branches. The 2018 change reflected the favorable impact of changes to certain tax only accounting methods offset by updates to provisional amounts recorded related to foreign tax credits and withholding taxes as a result of additional guidance issued during 2018. The following table presents the components of net deferred tax assets and liabilities:
| December 31 |  |  | December 31 |
(in millions of U.S. dollars) | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |
Loss reserve discount | $ | 826 |  |  | $ | 584 |
Unearned premiums reserve | 519 |  |  | 471 |
Foreign tax credits | 247 |  |  | 262 |
Provision for uncollectible balances | 37 |  |  | 37 |
Loss carry-forwards | 143 |  |  | 137 |
Debt related amounts | 74 |  |  | 71 |
Compensation related amounts | 261 |  |  | 263 |
Cumulative translation adjustments | 33 |  |  | 43 |
Unrealized depreciation on investments | — |  |  | 102 |
Lease liability | 140 |  |  | — |
Other, net | — |  |  | 95 |
Total deferred tax assets | 2,280 |  |  | 2,065 |
Deferred tax liabilities: |  |  |
Deferred policy acquisition costs | 588 |  |  | 621 |
Other intangible assets, including VOBA | 1,468 |  |  | 1,440 |
Un-remitted foreign earnings | 73 |  |  | 47 |
Investments | 40 |  |  | 59 |
Unrealized appreciation on investments | 470 |  |  | — |
Depreciation | 157 |  |  | 123 |
Lease right-of-use asset | 129 |  |  | — |
Other, net | 45 |  |  | — |
Total deferred tax liabilities | 2,970 |  |  | 2,290 |
Valuation allowance | 114 |  |  | 79 |
Net deferred tax liabilities | $ | (804 | ) |  | $ | (304 | )
The 2017 Tax Act also included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on income of foreign subsidiaries and for a Base Erosion and Anti-Abuse Tax (BEAT) under which taxes may be imposed on certain payments to affiliated foreign companies. We have evaluated the accounting policy election required with regard to the GILTI and BEAT provisions, and have concluded we will treat both as a period cost. As a result, we have recorded no related deferred taxes. The valuation allowance of $114 million at December 31, 2019, and $79 million at December 31, 2018, reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable. At December 31, 2019, Chubb has net operating loss carry-forwards of $496 million which, if unused, will expire starting in 2020, and a foreign tax credit carry-forward in the amount of $247 million which, if unused, will expire starting in 2026. The following table presents a reconciliation of the beginning and ending amount of gross unrecognized tax benefits:
| December 31 |  |  | December 31 |
(in millions of U.S. dollars) | 2019 |  |  | 2018 |
Balance, beginning of year | $ | 14 |  |  | $ | 13 |
Additions based on tax positions related to the current year | 12 |  |  | 1 |
Additions based on tax positions related to prior years | 23 |  |  | — |
Reductions for tax positions of prior years | — |  |  | — |
Reductions for the lapse of the applicable statutes of limitations | (2 | ) |  | — |
Balance, end of year | $ | 47 |  |  | $ | 14 |
At December 31, 2019 and 2018, the gross unrecognized tax benefits of $47 million and $14 million, respectively, can be reduced by $19 million and nil, respectively, associated with foreign tax credits. The net amounts of $28 million and $14 million at December 31, 2019 and 2018, respectively, if recognized, would favorably affect the effective tax rate. It is reasonably possible that over the next twelve months, that the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations by taxing authorities and the lapses of statutes of limitations. Chubb recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the Consolidated statements of operations. Tax-related interest expense (income) and penalties reported in the Consolidated statements of operations were $5 million at December 31, 2019, and were immaterial for 2018, and 2017. Liabilities for tax-related interest and penalties in our Consolidated balance sheets were $8 million and $3 million at December 31, 2019 and 2018, respectively. In March 2017, the IRS commenced its field examination of Chubb Group Holdings’ U.S. Federal income tax returns for 2014 and 2015 and Chubb Corp’s U.S. Federal income tax return for 2014. The Chubb Group Holdings examination for 2014 and 2015 tax years is still ongoing with no material adjustments proposed to date. In February 2019, the IRS completed its examinations of Chubb Corp's 2014 return with no material adjustments. Chubb Corp's U.S. Federal income tax returns for 2015 and the short period return for 2016 were not examined by the IRS and the statute of limitations for those years closed during 2019. In September 2019, we were notified by the IRS of its intention to examine the 2016 and 2017 tax returns of Chubb Group Holdings. That examination is yet to begin. As a multinational company, we also have examinations under way in several foreign jurisdictions. With few exceptions, Chubb is no longer subject to income tax examinations for years prior to 2010. The following table summarizes tax years open for examination by major income tax jurisdiction:
At December 31, 2019 |  |  |
Australia | 2014 | - | 2019
Canada | 2012 | - | 2019
France | 2017 | - | 2019
Germany | 2015 | - | 2019
Italy | 2010 | - | 2019
Mexico | 2014 | - | 2019
Spain | 2012 | - | 2019
Switzerland | 2015 | - | 2019
United Kingdom | 2015 | - | 2019
United States | 2014 | - | 2019

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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