Alcoa 2015 Annual Report Download - page 85

subsidiaries decreased significantly (from 34% to 15.25%), resulting in future cash tax savings over the 10-year
holiday period (retroactively effective as of January 1, 2013). Additionally, a portion of one of the subsidiaries net
deferred tax asset that reverses within the holiday period was remeasured at the new tax rate (the net deferred tax asset
of the other subsidiary was not remeasured since it could still be utilized against the subsidiary’s future earnings not
subject to the tax holiday). This remeasurement resulted in a decrease to that subsidiary’s net deferred tax asset and a
noncash charge to earnings of $52 ($31 after noncontrolling interest).
Alcoa’s effective tax rate was 23.6% in 2013 (provision on a loss) compared with the U.S. federal statutory rate of
35%. The effective tax rate differs (by (58.6)% points) from the U.S. federal statutory rate primarily due to a $1,731
impairment of goodwill (see Impairment of Goodwill above) and a $209 charge for a legal matter (see Restructuring
and Other Charges above) that are nondeductible for income tax purposes, a $372 discrete income tax charge for
valuation allowances on certain deferred tax assets in Spain and the United States (see Income Taxes in Critical
Accounting Policies and Estimates below), restructuring charges related to operations in Canada (benefit at a lower tax
rate) and Italy (no tax benefit) (see Restructuring and Other Charges above), and a $9 discrete income tax charge
related to prior year taxes in Spain and Australia. These items were slightly offset by an $18 discrete income tax
benefit related to new U.S. tax legislation (see below).
On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law and reinstated various expired or
expiring temporary business tax provisions through 2013. Two specific temporary business tax provisions that expired
in 2011 and impacted Alcoa are the look-through rule for payments between related controlled foreign corporations
and the research and experimentation credit. The expiration of these two provisions resulted in Alcoa recognizing a
higher income tax provision of $18 in 2012. As tax law changes are accounted for in the period of enactment, Alcoa
recognized an $18 discrete income tax benefit in 2013 related to the 2012 tax year to reflect the extension of these
provisions. Beginning on January 1, 2014, these two provisions once again expired. On December 19, 2014, the Tax
Increase Prevention Act of 2014 was signed into law, which retroactively extended for one year (i.e. calendar year
2014) a number of the tax provisions that expired at the end of 2013, including the two specific aforementioned
provisions. Beginning on January 1, 2015, these two provisions once again expired. On December 18, 2015, the
Consolidated Appropriations Act, 2016 was signed into law, which retroactively (as of January 1, 2015) extended for
two or five years or made permanent a number of the tax provisions that expired at the end of 2014, including the two
specific aforementioned provisions. The look-through rule for payments between related controlled foreign
corporations was renewed for five years (through 2019) and the research and experimentation credit was made
permanent.
Management anticipates that the effective tax rate in 2016 will be between 30% and 35%. However, business portfolio
actions, changes in the current economic environment, tax legislation or rate changes, currency fluctuations, ability to
realize deferred tax assets, and the results of operations in certain taxing jurisdictions may cause this estimated rate to
fluctuate.
Noncontrolling Interests—Net income attributable to noncontrolling interests was $125 in 2015 compared with Net
loss attributable to noncontrolling interests of $91 in 2014 and Net income attributable to noncontrolling interests of
$41 in 2013. These amounts were virtually all related to Alumina Limited’s 40% ownership interest in AWAC. In
2015, AWAC generated income compared to a loss in both 2014 and 2013.
In 2015, the change in AWAC’s results was principally due to improved operating results, the absence of restructuring
and other charges related to both the permanent shutdown of the Point Henry smelter in Australia (see Restructuring
and Other Charges above) and the divestiture of an ownership interest in a mining and refining joint venture in Jamaica
(see Alumina in Segment Information below), and the absence of a combined $79 ($32 was noncontrolling interest’s
share) discrete income tax charge related to a respective tax rate change in both Brazil and Spain (see Income Taxes
above). These positive impacts were somewhat offset by restructuring charges related to the curtailment of both the
refinery in Suriname and in Point Comfort, TX and the permanent closure of the Anglesea power station and coal mine
(see Restructuring and Other Charges above), an $85 ($34 was noncontrolling interest’s share) discrete income tax
charge for a valuation allowance on certain deferred tax assets (see Income Taxes above), and the absence of a $28
gain ($11 was noncontrolling interest’s share) on the sale of a mining interest in Suriname. The improvement in
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