Amazon.com 2013 Annual Report Download - page 73

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62
U.S. and international components of income before income taxes are as follows (in millions):
Year Ended December 31,
2013 2012 2011
U.S. $ 704 $ 882 $ 658
International (198)(338) 276
Income before income taxes $ 506 $ 544 $ 934
The items accounting for differences between income taxes computed at the federal statutory rate and the provision
recorded for income taxes are as follows:
Year Ended December 31,
2013 2012 2011
Federal statutory rate 35.0% 35.0% 35.0%
Effect of:
Impact of foreign tax differential (8.1) 31.5 (8.4)
State taxes, net of federal benefits 2.7 0.2 1.5
Tax credits (16.6)(4.4)(3.2)
Nondeductible compensation 16.9 13.3 4.9
Domestic production activities deduction (2.1) — —
Other, net 4.0 3.0 1.4
Total 31.8% 78.6% 31.2%
Our effective tax rate in 2013 was lower than the 35% U.S. federal statutory rate and our effective tax rate in 2012
primarily due to the favorable impact of earnings in lower tax rate jurisdictions, a decline in the proportion of our losses for
which we may not realize a related tax benefit, and the retroactive extension of the U.S. federal research and development
credit, which expired in December 2013. The favorable impact of earnings in lower tax rate jurisdictions primarily relates to
our European operations, which are headquartered in Luxembourg. Losses for which we may not realize a related tax benefit,
primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our tax expense,
and therefore increase our effective tax rate. In 2013, we recognized tax benefits for a greater proportion of these losses as
compared to 2012. We have recorded valuation allowances against the deferred tax assets associated with losses for which we
may not realize a related tax benefit.
In 2012, our effective tax rate was higher than the 35% U.S. federal statutory rate and our effective tax rate in 2011
primarily due to the adverse impact of foreign jurisdiction losses of subsidiaries primarily located outside of Europe for which
we may not realize a tax benefit. The adverse impact of these losses was partially offset by the favorable impact of earnings in
lower tax rate jurisdictions primarily related to our European operations. Additionally, our effective tax rate in 2012 was more
volatile as compared to 2011 due to the lower level of pre-tax income generated during the year, relative to our tax expense.
Our effective tax rate in 2012 was also adversely impacted by acquisitions (including integrations), audit developments,
nondeductible expenses, and changes in tax law such as the expiration of the U.S. federal research and development credit at
the end of 2011.
In 2011, the favorable impact of earnings in lower tax rate jurisdictions offset the adverse impact of foreign jurisdiction
losses and as a result, the effective tax rate was lower than the 35% U.S. federal statutory rate.