Estee Lauder 2015 Annual Report Download - page 98

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THE EST{E LAUDER COMPANIES INC. 95
Earnings from the Company’s global operations are subject
to tax in various jurisdictions both within and outside the
United States. The Company participates 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 accuracy
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 2015, the
Company formally concluded the compliance process
with respect to fiscal years 2013 and 2014, respectively,
under the IRS CAP. The conclusion of this process did not
impact the Company’s consolidated financial statements.
As of June 30, 2015, the compliance process was ongoing
with respect to fiscal year 2015.
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
transfer pricing, which may require an extended period of
time for resolution.
During fiscal 2015, the Company concluded various
state, local and foreign income tax audits and examina-
tions while several other matters, including those noted
above, were initiated or remained pending. On the basis
of the information available in this regard as of June 30,
2015, it is reasonably possible that the total amount of
unrecognized tax benefits could decrease in a range of $5
million to $10 million within 12 months as a result of pro-
jected resolutions of global tax examinations and contro-
versies and a potential lapse of the applicable statutes of
limitations.
The tax years subject to examination vary depending
on the tax jurisdiction. As of June 30, 2015, the following
tax years remain subject to examination by the major tax
jurisdictions indicated:
Major Jurisdiction Open Fiscal Years
Belgium 2013–2015
Canada 2008–2015
China 2011–2015
France 2012–2015
Germany 2013—2015
Hong Kong 2009–2015
Japan 2012—2015
Korea 2014–2015
Russia 2013–2015
Spain 2012–2015
Switzerland 2011–2015
United Kingdom 2014–2015
United States 2015
State of California 2012–2015
State and City of New York 2011–2015
The Company is also subject to income tax examinations
in numerous other state, local and foreign jurisdictions.
The Company believes that its tax reserves are adequate
for all years subject to examination.
A full valuation allowance has been provided for those
deferred tax assets for which, in the opinion of manage-
ment, it is more-likely-than-not that the deferred tax assets
will not be realized.
As of June 30, 2015 and 2014, the Company had gross
unrecognized tax benefits of $77.8 million and $58.1 mil-
lion, respectively. The total amount of unrecognized tax
benefits that, if recognized, would affect the effective
tax rate was $51.6 million.
The Company classifies applicable interest and penal-
ties related to unrecognized tax benefits as a component
of the provision for income taxes. The total gross accrued
interest and penalty expense during fiscal 2015 in the
accompanying consolidated statement of earnings was
$5.9 million. During fiscal 2014, the Company recognized
a gross interest and penalty benefit of $1.7 million in the
accompanying consolidated statement of earnings.
The total gross accrued interest and penalties in the
accompanying consolidated balance sheets at June 30,
2015 and 2014 were $16.5 million and $12.5 million,
respectively. A reconciliation of the beginning and ending
amount of gross unrecognized tax benefits is as follows:
JUNE 30 2015 2014
(In millions)
Beginning of the year balance of gross unrecognized tax benefits $ 58.1 $ 64.0
Gross amounts of increases as a result of tax positions taken during a prior period 21.9 5.1
Gross amounts of decreases as a result of tax positions taken during a prior period (8.1) (10.5)
Gross amounts of increases as a result of tax positions taken during the current period 11.2 10.1
Amounts of decreases in unrecognized tax benefits relating to settlements with
taxing authorities (3.1) (6.4)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable
statutes of limitations (2.2) (4.2)
End of year balance of gross unrecognized tax benefits $ 77.8 $ 58.1