Honda 2008 Annual Report Download - page 87

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A n n u a l R e p o r t 2 0 0 8 8 5
At March 31, 2008, certain of the Company’s subsidiaries have operating loss carryforwards for income tax purposes of
¥112,182 million ($1,120 million), which are available to offset future taxable income, if any. Periods available to offset future
taxable income vary in each tax jurisdiction and range from one year to an indefinite period as follows:
Yen
(millions)
U.S. dollars
(millions)
(note 2)
Within 1 year ¥ 3,180 $ 32
1 to 5 years 14,846 148
5 to 15 years 21,993 220
Indefinite periods 72,163 720
¥112,182 $ 1,120
At March 31, 2007 and 2008, Honda did not recognize
deferred tax liabilities of ¥78,252 million and ¥105,848 million
($1,056 million), respectively, for certain portions of the
undistributed earnings of the Company’s foreign subsidiaries
because such portions were considered indefinitely
reinvested. At March 31, 2007 and 2008, the undistributed
earnings not subject to deferred tax liabilities were ¥2,995,170
million and ¥3,327,339 million ($33,210 million), respectively.
Honda adopted the provision of FIN No. 48 on April
1, 2007. As of the date of adoption of FIN No. 48, Honda
identified unrecognized tax benefits of ¥36,330 million ($363
million). As of March 31, 2008, Honda’s gross unrecognized
tax benefits totaled ¥99,527 million ($993 million). Of this
amount, the amount that would impact Honda’s effective tax
rate, if recognized, is ¥85,403 million ($852 million).
Honda recognized interest and penalty of ¥3,011 million
($30 million) for the year ended March 31, 2008. As of
March 31, 2008, Honda had recorded approximately ¥5,960
million ($59 million) for accrued interest and accrued penalty.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
Yen
(millions)
U.S. dollars
(millions)
(note 2)
Balance at beginning of year ¥ 36,330 $ 363
Additions for tax positions related to the current year 9,213 92
Additions for tax positions of prior years 74,674 745
Reductions for tax positions of prior years (14,769) (147)
Settlements (51) (1)
Reductions for statute of limitations (555) (6)
Effect of exchange rate changes (5,315) (53)
Balance at end of year ¥ 99,527 $ 993
Tax liabilities associated with uncertain tax positions are
primarily classified as other (noncurrent) liabilities, as we do
not expect to pay cash or settle on these positions within the
next twelve months.
Honda is subject to income tax examinations in many
tax jurisdictions, mainly related to transfer pricing issues.
Tax examinations can involve complex issues and the
resolution of issues may span multiple years, particularly if
subject to negotiation or litigation. Although Honda believes
its estimates of the total unrecognized tax benefits are
reasonable, uncertainties regarding the final determination of
income tax audit settlements and any related litigation could
affect the amount of total unrecognized tax benefits in the
future periods.
The Company has been examined by the Tokyo Regional
Taxation Bureau regarding transfer pricing matters for the
period from the year ended March 31, 2002 to the year
ended March 31, 2007. Honda has recognized the liability
for unrecognized tax benefits, including those related to this
examination.
In addition, Honda has open tax years from primarily 2001
to 2008 with various significant taxing jurisdictions including
the United States (fiscal years 2001-2008), Japan (fiscal years
2002-2008), Canada, the United Kingdom, Germany, France,
Belgium, Thailand, India, Brazil, and Australia.
If our estimates of unrecognized tax benefits and potential
tax benefits are not representative of actual outcomes, our
consolidated financial statements could be materially affected
in the period of settlement or when the statutes of limitations
expire, as we treat these events as discrete items in the period
of resolution. It is difficult to estimate the timing and range
of possible change related to our uncertain tax positions,
as finalizing audits with the relevant income tax authorities
may involve formal administrative and legal proceedings.
Accordingly, it is not possible to reasonably estimate the
expected changes to the total unrecognized tax benefits
over next twelve months, although any settlements or statute
expirations may result in a significant increase or decrease in
our total unrecognized tax benefits, including those positions
related to tax examinations being currently conducted.