DELPHI 2015 Annual Report Download - page 124

Table of Contents
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The effective tax rate in the year ended December 31, 2015 was impacted by increased tax expense of $15 million
resulting from changes in judgment related to deferred tax asset valuation allowances, as well as the enactment of the UK
Finance (No. 2) Act 2015 (the “UK 2015 Finance Act”) on November 18, 2015, which provides for a reduction of the corporate
income tax rate from 20% to 19% effective April 1, 2017, with a further reduction to 18% effective April 1, 2020. 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 fourth quarter of 2015. As a result, the effective tax rate was impacted by an increased tax expense of
approximately $11 million for the year ended December 31, 2015 due to the resultant impact on the net deferred tax asset
balances. Additionally, the effective tax rate in the year ended December 31, 2015 was impacted by unfavorable geographic
income mix in 2015 as compared to 2014, primarily due to changes in the underlying operations of the business, offset by tax
planning initiatives and the resulting favorable impact on foreign tax credits.
The effective tax rate in the year ended December 31, 2014 was impacted by favorable geographic income mix in 2014 as
compared to 2013, primarily due to changes in the underlying operations of the business as well as tax planning initiatives, and
the resulting favorable impact on foreign tax credits. These favorable impacts were offset by net increases resulting from
changes in judgment related to deferred tax asset valuation allowances of $18 million in 2014.
The effective tax rate in the year ended December 31, 2013 was impacted by the enactment of the American Taxpayer
Relief Act of 2012 on January 2, 2013, which retroactively reinstated expired tax provisions known as tax extenders including
the research and development tax credit. The impact of this legislation was recorded as a discrete item during the first quarter of
2013, the period of enactment, and resulted in a tax benefit of approximately $19 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.
Deferred Income Taxes
The Company accounts for income taxes and the related accounts under the liability method. Deferred income tax assets
and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting
purposes and the bases of such assets and liabilities as measured by tax laws. Significant components of the deferred tax assets
and liabilities are as follows:
December 31,
2015 2014
(in millions)
Deferred tax assets:
Pension............................................................................................................................................ $ 167 $ 213
Employee benefits .......................................................................................................................... 24 25
Net operating loss carryforwards.................................................................................................... 902 708
Warranty and other liabilities.......................................................................................................... 128 117
Other ............................................................................................................................................... 156 147
Total gross deferred tax assets........................................................................................................ 1,377 1,210
Less: valuation allowances ............................................................................................................. (910)(747)
Total deferred tax assets (1).......................................................................................................... $ 467 $ 463
Deferred tax liabilities:
Fixed assets..................................................................................................................................... $ 51 $ 12
Tax on unremitted profits of certain foreign subsidiaries............................................................... 70 74
Intangibles....................................................................................................................................... 360 144
Total gross deferred tax liabilities................................................................................................ 481 230
Net deferred tax (liabilities) assets............................................................................................. $(14) $ 233
(1) Reflects gross amount before jurisdictional netting of deferred tax assets and liabilities.