Estee Lauder 2013 Annual Report Download - page 158

156 THE EST{E LAUDER COMPANIES INC.
transfer pricing, which may require an extended period of
time for resolution.
The Company had been notified of a disallowance
of tax deductions claimed by its subsidiary in Spain for
fiscal years 1999 through 2002. An appeal against this
reassessment was filed with the Chief Tax Inspector. On
July 18, 2005, the final assessment made by the Chief Tax
Inspector was received, confirming the reassessment
made by the tax auditors. During fiscal 2006, an appeal
against this final assessment was filed with the Madrid
Regional Economic Administrative Tribunal (“TEAR”).
In view of the TEAR’s silence, during fiscal 2007 the claim
was presumed to be dismissed and an appeal was filed
against it with the Central Economic-Administrative
Tribunal (“TEAC”). During the fiscal 2008 fourth quarter,
the TEAC dismissed the claim and, on June 10, 2008, the
Company filed an appeal for judicial review with
the National Appellate Court. During fiscal 2009, the
Company completed the appeal proceedings with
the National Appellate Court and, as of June 30, 2011,
awaited the court’s decision. During the first quarter of
fiscal 2012, the National Appellate Court notified the
Company that the appeal was denied. The Company has
been assessed corporate income tax and interest of $3.7
million, net of tax, at current exchange rates. In response,
the Company filed an appeal with the Spain Supreme
Earnings from the Company’s global operations are
subject to tax in various jurisdictions both within and out-
side the United States. During fiscal 2011, the Company
commenced participation in the U.S. Internal Revenue
Service (the “IRS”) Compliance Assurance Program
(“CAP”). The objective of CAP is to reduce taxpayer bur-
den and uncertainty while assuring the IRS of the accu-
racy of income tax returns prior to filing, thereby reducing
or eliminating the need for post-filing examinations.
During the first and fourth quarters of fiscal 2013, the
Company formally concluded the compliance process
with respect to fiscal years 2011 and 2012, respectively,
under the IRS CAP. The conclusion of this process did not
impact the Company’s consolidated financial statements.
As of June 30, 2013, the compliance process was ongoing
with respect to fiscal 2013.
During the second quarter of fiscal 2012, the Company
formally concluded the IRS examination of fiscal years
2009 and 2010. The conclusion of this examination did
not materially impact the Company’s consolidated finan-
cial statements.
The Company is currently undergoing income tax
examinations and controversies in several state, local and
foreign jurisdictions. These matters are in various stages of
completion and involve complex multi-jurisdictional issues
common among multinational enterprises, including
The Company classifies applicable interest and penal-
ties related to unrecognized tax benefits as a component
of the provision for income taxes. During fiscal 2013 and
2012, the Company recognized gross interest and penalty
benefits of $8.2 million and $6.8 million, respectively, in
the accompanying consolidated statements of earnings.
The total gross accrued interest and penalties in the
accompanying consolidated balance sheets at June 30,
2013 and 2012 were $17.4 million and $28.6 million,
respectively. A reconciliation of the beginning and ending
amount of gross unrecognized tax benefits is as follows:
JUNE 30 2013 2012
(In millions)
Beginning of the year balance of gross unrecognized tax benefits $ 78.5 $104.8
Gross amounts of increases as a result of tax positions taken during a prior period 5.6 16.4
Gross amounts of decreases as a result of tax positions taken during a prior period (9.8) (16.4)
Gross amounts of increases as a result of tax positions taken during the current period 8.4 5.5
Amounts of decreases in unrecognized tax benefits relating to settlements with
taxing authorities (6.8) (12.2)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable
statutes of limitations (11.9) (19.6)
End of year balance of gross unrecognized tax benefits $ 64.0 $ 78.5
20
13
$
78.
5
5.
6
(
9.8
)
8
.4
(
6.8
)
(
11.9
)
$
64.
0