Citibank 2012 Annual Report Download - page 206

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The following is a roll-forward of the Company’s unrecognized tax benefits.
In millions of dollars 2012 2011 2010
Total unrecognized tax benefits at January 1 $ 3,923 $4,035 $3,079
Net amount of increases for current year’s tax positions 136 193 1,039
Gross amount of increases for prior years’ tax positions 345 251 371
Gross amount of decreases for prior years’ tax positions (1,246) (507) (421)
Amounts of decreases relating to settlements (44) (11) (14)
Reductions due to lapse of statutes of limitation (3) (38) (11)
Foreign exchange, acquisitions and dispositions (2) — (8)
Total unrecognized tax benefits at December 31 $ 3,109 $3,923 $4,035
Total amount of unrecognized tax benefits at December 31, 2012, 2011
and 2010 that, if recognized, would affect the effective tax rate are $1.3
billion, $2.2 billion and $2.1 billion, respectively. The remainder of the
uncertain tax positions have offsetting amounts in other jurisdictions or are
temporary differences, except for $0.9 billion, which would be booked directly
to Retained earnings.
Interest and penalties (not included in “unrecognized tax benefits” above) are a component of the Provision for income taxes.
2012 2011 2010
In millions of dollars Pretax Net of tax Pretax Net of tax Pretax Net of tax
Total interest and penalties in the Consolidated Balance Sheet at January 1 $404 $261 $348 $223 $ 370 $ 239
Total interest and penalties in the Consolidated Statement of Income 114 71 61 41 (16) (12)
Total interest and penalties in the Consolidated Balance Sheet at December 31 (1) 492 315 404 261 348 223
(1) 2012 includes $10 million for foreign penalties and $4 million for state penalties.
The Company is currently under audit by the Internal Revenue Service
and other major taxing jurisdictions around the world. It is thus reasonably
possible that significant changes in the gross balance of unrecognized tax
benefits may occur within the next 12 months, but the Company does not
expect such audits to result in amounts that would cause a significant
change to its effective tax rate, other than the following items.
The Company may resolve certain issues with IRS Appeals for the
2003–2005 and 2006–2008 cycles within the next 12 months. The gross
uncertain tax positions at December 31, 2012 for the items that may be
resolved are as much as $655 million plus gross interest of $92 million.
Because of the number and nature of the issues remaining to be resolved, the
potential tax benefit to continuing operations could be anywhere in a range
between $0 and $383 million. In addition, the audit for the companies in
the Germany tax group for the years 2005–2008 may conclude in 2013. The
gross uncertain tax positions at December 31, 2012 for this audit is as much
as $112 million plus gross interest of $29 million. The potential tax benefit,
most of which would go to discontinued operations, is anywhere in the range
from $0 to $137 million.
The following are the major tax jurisdictions in which the Company and
its affiliates operate and the earliest tax year subject to examination:
Jurisdiction Tax year
United States 2009
Mexico 2008
New York State and City 2005
United Kingdom 2010
Japan 2009
Brazil 2008
Singapore 2007
Hong Kong 2007
Ireland 2008
Foreign pretax earnings approximated $14.7 billion in 2012, $13.1 billion
in 2011 and $12.3 billion in 2010 (of which $0.1 billion loss, $0.2 billion
profit and $0.1 billion profit, respectively, are in discontinued operations).
As a U.S. corporation, Citigroup and its U.S. subsidiaries are currently
subject to U.S. taxation on all foreign pretax earnings earned by a foreign
branch. Pretax earnings of a foreign subsidiary or affiliate are subject to U.S.
taxation when effectively repatriated. The Company provides income taxes
on the undistributed earnings of non-U.S. subsidiaries except to the extent
that such earnings are indefinitely reinvested outside the United States. At
December 31, 2012, $42.6 billion of accumulated undistributed earnings of
non-U.S. subsidiaries were indefinitely invested. At the existing U.S. federal
income tax rate, additional taxes (net of U.S. foreign tax credits) of $11.5
billion would have to be provided if such earnings were remitted currently.
The current year’s effect on the income tax expense from continuing
operations is included in the “Foreign income tax rate differential” line in
the reconciliation of the federal statutory rate to the Company’s effective
income tax rate in the table above.
Income taxes are not provided for the Company’s “savings bank base year
bad debt reserves” that arose before 1988, because under current U.S. tax
rules, such taxes will become payable only to the extent such amounts are
distributed in excess of limits prescribed by federal law. At December 31, 2012,
the amount of the base year reserves totaled approximately $358 million
(subject to a tax of $125 million).