MasterCard 2010 Annual Report Download - page 133

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
The net increase in the valuation allowance during 2010 was $6 million. The 2010 and 2009 valuation
allowances relate primarily to the Company’s ability to recognize tax benefits associated with certain foreign net
operating losses. The recognition of these benefits is dependent upon the future taxable income in such foreign
jurisdictions and the ability under tax law in these jurisdictions to utilize net operating losses following a change
in control.
A reconciliation of the beginning and ending balance for the Company’s unrecognized tax benefits for the
years ended December 31, is as follows:
2010 2009 2008
(in millions)
Beginning balance $146 $163 $135
Additions:
Current year tax positions 22 19 20
Prior year tax positions 15 10 16
Reductions:
Prior year tax positions, due to changes in judgments (12) (18) (3)
Settlements with tax authorities (6) (16) (1)
Expired statute of limitations — (12) (4)
Ending balance $165 $146 $163
The entire balance of $165 million of unrecognized tax benefits, if recognized, would reduce the effective
tax rate. There are no positions for which it is reasonably possible that the total amounts of unrecognized tax
benefits will increase or decrease significantly within the next twelve months.
The Company is subject to tax in the United States, Belgium and various state and other foreign
jurisdictions. With few exceptions, the Company is no longer subject to federal, state, local and foreign
examinations by tax authorities for years before 2002.
It is the Company’s policy to account for interest expense related to income tax matters as interest expense
in its statement of operations, and to include penalties related to income tax matters in the income tax provision.
For the years ended December 31, 2010, 2009 and 2008, the Company recorded tax-related interest income of $5
million and tax-related interest expense of $5 million and $8 million, respectively, in its consolidated statement
of operations. At December 31, 2010 and 2009, the Company had a net income tax-related interest payable of
$17 million and $19 million, respectively, in its consolidated balance sheet. At December 31, 2010 and 2009, the
amounts the Company had recognized for penalties payable in its consolidated balance sheet were not significant.
Note 22. Legal and Regulatory Proceedings
MasterCard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary
course of business. Some of these proceedings involve complex claims that are subject to substantial
uncertainties and unascertainable damages. Therefore, the probability of loss and an estimation of damages are
not possible to ascertain at present. While these types of contingencies are generally resolved over long periods
of time, the probability of loss or an estimation of damages can change due to discrete or a combination of
developments, which could result in a material adverse effect on our results of operations, cash flows or financial
condition. Except as discussed below, MasterCard has not established reserves for any of these proceedings.
MasterCard has recorded liabilities for certain legal proceedings which have been settled through contractual
agreements. Except as described below, MasterCard does not believe that any legal or regulatory proceedings to
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