Costco 2013 Annual Report Download - page 69

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The deferred tax accounts at the end of 2013 and 2012 include current deferred income tax assets of $422
and $393 respectively, included in deferred income taxes and other current assets; non-current deferred
income tax assets of $62 and $58, respectively, included in other assets; and non-current deferred income
tax liabilities of $450 and $412, respectively, included in deferred income taxes and other liabilities.
The Company has not provided for U.S. deferred taxes on cumulative undistributed earnings of $3,619 and
$3,162 at the end of 2013 and 2012, respectively, of certain non-U.S. consolidated subsidiaries as such
earnings are deemed by the Company to be indefinitely reinvested. Because of the availability of U.S. foreign
tax credits and complexity of the computation, it is not practicable to determine the U.S. federal income tax
liability that would be associated with such earnings if such earnings were not deemed to be indefinitely
reinvested. The Company believes that its U.S. current and projected asset position is sufficient to meet its
U.S. liquidity requirements and has no current plans to repatriate for use in the U.S. the cash and cash
equivalents and short-term investments held by these subsidiaries.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2013 and 2012
is as follows:
2013 2012
Gross unrecognized tax benefit at beginning of year . . . . . . . . . . . . . . . . . . . . . . . $ 116 $ 106
Gross increases—current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . 10 15
Gross increases—tax positions in prior years . . . . . . . . . . . . . . . . . . . . . . . . . 5 3
Gross decreases—tax positions in prior years . . . . . . . . . . . . . . . . . . . . . . . . . (13) (3)
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) (3)
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 (2)
Gross unrecognized tax benefit at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80 $ 116
Included in the balance at the end of 2013, are $36 of tax positions for which the ultimate deductibility is
highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact
of deferred tax accounting, other than interest and penalties, the disallowance of these tax positions would
not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to
an earlier period.
The total amount of such unrecognized tax benefits that, if recognized, would favorably affect the effective
income tax rate in future periods is $46 and $36 at the end of 2013 and 2012, respectively.
Accrued interest and penalties related to income tax matters are classified as a component of income tax
expense. Interest and penalties recognized by the Company were not material in 2013 and 2012. Accrued
interest and penalties were $11 and $16 at the end of 2013 and 2012, respectively.
The Company is currently under audit by several taxing jurisdictions in the United States and in several
foreign countries. Some audits may conclude in the next 12 months and the unrecognized tax benefits we
have recorded in relation to the audits may differ from actual settlement amounts. It is not practical to estimate
the effect, if any, of any amount of such change during the next 12 months to previously recorded uncertain
tax positions in connection with the audits. The Company does not anticipate that there will be a material
increase or decrease in the total amount of unrecognized tax benefits in the next twelve months.
The Company files income tax returns in the United States, various state and local jurisdictions, in Canada
and in several other foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S.
federal, state or local examination for years before fiscal 2007. The Company is currently subject to
examination in Canada for fiscal years 2009 to present and in California for fiscal years 2004 to present. No
other examinations are believed to be material.