DELPHI 2013 Annual Report Download - page 114

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For purposes of comparability and consistency, the Company uses the notional U.S. federal income tax rate when
presenting the Company’s reconciliation of the income tax provision. The Company is a U.K. resident taxpayer and as such is
not generally subject to U.K. tax on remitted foreign earnings. As a result, the Company does not anticipate foreign earnings
would be subject to a 35% tax rate upon repatriation to the U.K., as is the case when U.S. based companies repatriate earnings
to the U.S. A reconciliation of the provision for income taxes compared with the amounts at the notional U.S. federal statutory
rate was:
Year Ended December 31,
2013 2012 2011
(in millions)
Notional U.S. federal income taxes at statutory rate .................................................... $ 533 $ 471 $ 527
Income taxed at other rates........................................................................................... (281)(200)(225)
Change in valuation allowance..................................................................................... 6(29)(52)
Other change in tax reserves......................................................................................... (13)(13) 17
Withholding taxes......................................................................................................... 56 22 56
Tax credits..................................................................................................................... (58)(13)(26)
Change in tax law ......................................................................................................... 15 6 13
Tax settlements............................................................................................................. —(26) —
Other adjustments......................................................................................................... (2)(6)(5)
Total income tax expense...................................................................................... $ 256 $ 212 $ 305
Effective tax rate........................................................................................................... 17% 16% 20%
The Company’s tax rate is affected by the tax rates in the jurisdictions in which the Company operates, the relative
amount of income earned by jurisdiction, jurisdictions with a statutory tax rate less than the U.S. rate of 35% and the relative
amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. Included in the
non-U.S. incomes taxes at other rates are tax incentives obtained in various non-U.S. countries, primarily the Hi-Tech
Enterprise status in China, the Special Economic Zone exemption in Turkey and the Maquiladora regime in Mexico of $75
million in 2013, $41 million in 2012, and $64 million in 2011, and tax benefit for income earned in jurisdictions where a
valuation allowance has been recorded. The Company currently benefits from tax holidays in various non-U.S. jurisdictions
with expiration dates from 2015 through 2023. The income tax benefits attributable to these tax holidays are approximately $23
million ($0.07 per share) in 2013, $13 million ($0.04 per share) in 2012 and $20 million ($0.05 per share) in 2011.
The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013, which retroactively reinstated expired tax
provisions known as tax extenders including the research and development tax credit. The income tax accounting effect,
including any retroactive effect, of a tax law change is accounted for in the period of enactment, which in this case was the first
quarter of 2013. As a result, the effective tax rate for the year ended December 31, 2013 was impacted by a tax benefit of
approximately $22 million related to the 2012 research and development credit in addition to the 2013 research and
development credit. On July 17, 2013, the United Kingdom-Finance Bill of 2013 became law as the Finance Act 2013 (the
“U.K. Finance Act”). The U.K. Finance Act provides for a reduction to the corporate income tax rate from 23% to 21%
effective April 1, 2014, with a further reduction to 20% effective April 1, 2015. The impact of this legislation was recorded as a
discrete item during the third quarter of 2013, the period of enactment, and resulted in increased tax expense of approximately
$12 million for the year ended December 31, 2013 due to the resultant impact on the net deferred tax asset balances.
Additionally, the effective tax rate in the year ended December 31, 2013 was impacted by a reduction in tax reserves of $13
million, partially offset by an increase in withholding taxes due to overall increased earnings and full year inclusion of MVL
activity in 2013.
The effective tax rate in the year ended December 31, 2012 was impacted by the release of $29 million of valuation
allowances, a favorable tax settlement of $26 million, a $30 million reduction in tax reserves due to resolution of open issues
with tax authorities, offset by an increase of $17 million primarily related to uncertain tax positions outside the United States
and an increase of $6 million related to a reduction to the corporate income tax rate in the U.K. from 25% to 23%. The
effective tax rate in the year ended December 31, 2011 was impacted by the release of $52 million of valuation allowances,
offset by an increase of $10 million in withholding tax expense primarily related to the funding of the redemption of all the
outstanding Class A and Class C membership interests in Delphi Automotive LLP and $27 million related to changes in our
assertion with respect to our intent to repatriate foreign earnings in certain countries.