Under Swiss law through December 31, 2020, 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. Furthermore, participation relief (i.e., tax relief) is granted to Chubb Limited at the federal, cantonal, and communal level for qualifying dividend income and capital gains related to the sale of qualifying participations (i.e., subsidiaries). 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 income taxes. Lloyd's is required to pay U.S. income tax on U.S. connected 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 this 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 insurance 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.

Chubb's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered. As a result of Swiss tax reform legislation effective in 2020, the Swiss tax rate increased from 7.83 percent in years 2018 and 2019 to 21.2 percent in 2020.


	Year Ended December 31
(in millions of U.S. dollars)	2020		2019		2018
Pre-tax income:
Switzerland	$	350	$	440	$	950
Outside Switzerland	3,812		4,809		3,707
Total pre-tax income	$	4,162	$	5,249	$	4,657
Provision for income taxes
Current tax expense:
Switzerland	$	52	$	29	$	89
Outside Switzerland	876		879		563
Total current tax expense	928		908		652
Deferred tax expense (benefit):
Switzerland	2		11		3
Outside Switzerland	(301)		(124)		40
Total deferred tax expense (benefit)	(299)		(113)		43
Provision for income taxes	$	629	$	795	$	695

The most significant jurisdictions contributing to the overall taxation of Chubb are calculated using the following rates in 2020: Switzerland 21.2 percent, U.S. 21.0 percent, U.K. 19.0 percent, and Bermuda 0.0 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)	2020		2019		2018
Expected tax provision at Swiss statutory tax rate	$	880	$	411	$	365
Permanent differences:
Taxes on earnings subject to rate other than Swiss statutory rate	(337)		376		372
Tax-exempt interest and dividends received deduction, net of proration	(41)		(49)		(75)
Net withholding taxes	67		40		33
Share-based compensation	(10)		(12)		(19)
Impact of 2017 Tax Act	—		—		(25)
Other	70		29		44
Provision for income taxes	$	629	$	795	$	695


	December 31		December 31
(in millions of U.S. dollars)	2020		2019
Deferred tax assets:
Loss reserve discount	$	884	$	826
Unearned premiums reserve	496		519
Foreign tax credits	222		247
Provision for uncollectible balances	46		37
Loss carry-forwards	123		143
Debt related amounts	69		74
Compensation related amounts	281		261
Cumulative translation adjustments	120		33
Investments	75		—
Lease liability	121		140

Total deferred tax assets	2,437		2,280
Deferred tax liabilities:
Deferred policy acquisition costs	522		588
Other intangible assets, including VOBA	1,425		1,468
Un-remitted foreign earnings	77		73
Investments	—		40
Unrealized appreciation on investments	957		470
Depreciation	123		157
Lease right-of-use asset	111		129
Other, net	31		45
Total deferred tax liabilities	3,246		2,970
Valuation allowance	83		114
Net deferred tax liabilities	$	(892)	$	(804)

The valuation allowance of $83 million and $114 million at December 31, 2020 and 2019, respectively, 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 non-U.S. 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, 2020, Chubb has net operating loss carry-forwards of $407 million which, if unused, will expire starting in 2021, and a foreign tax credit carry-forward in the amount of $222 million which, if unused, will expire starting in 2026.


	December 31		December 31
(in millions of U.S. dollars)	2020		2019
Balance, beginning of year	$	47	$	14
Additions based on tax positions related to the current year	5		12
Additions based on tax positions related to prior years	24		23


Reductions for the lapse of the applicable statutes of limitations	—		(2)
Balance, end of year	$	76	$	47

At December 31, 2020 and 2019, the gross unrecognized tax benefits of $76 million and $47 million, respectively, can be reduced by $31 million and $19 million, respectively, associated with foreign tax credits. The net amounts of $45 million and $28 million at December 31, 2020 and 2019, respectively, if recognized, would favorably affect the effective tax rate. We

made a settlement of a liability in January 2021 for $23 million, including interest. It is reasonably possible that over the next twelve months, that the amount of unrecognized tax benefits may change further 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 and penalties reported in the Consolidated statements of operations were $8 million at December 31, 2020, $5 million at December 31, 2019, and were immaterial for 2018. Liabilities for tax-related interest and penalties in our Consolidated balance sheets were $16 million and $8 million at December 31, 2020 and 2019, respectively.

In March 2017, the IRS commenced its field examination of Chubb Group Holdings’ U.S. Federal income tax returns for 2014 and 2015. The Chubb Group Holdings examination for 2014 and 2015 tax years is still ongoing with no material adjustments proposed to date. In July 2020, the IRS commenced its field examination of Chubb Group Holdings' U.S. Federal income tax returns for 2016, 2017 and 2018. 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.


At December 31, 2020
Australia	2014	-	2020
Canada	2012	-	2020
France	2018	-	2020
Germany	2015	-	2020
Italy	2010	-	2020
Mexico	2014	-	2020
Spain	2012	-	2020
Switzerland	2016	-	2020
United Kingdom	2015	-	2020
United States	2014	-	2020