MasterCard 2014 Annual Report Download - page 81

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
79
The 2014 and 2013 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:
2014 2013 2012
(in millions)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 320 $ 257 $ 214
Additions:
Current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 80 58
Prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 12 15
Reductions:
Prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (8) (21)
Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2) (2)
Expired statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (19) (7)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 364 $ 320 $ 257
The entire unrecognized tax benefits of $364 million, if recognized, would reduce the effective tax rate. The Company is subject
to tax in the United States, Belgium, Singapore and various other foreign jurisdictions, as well as state and local jurisdictions.
Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including
progress of tax audits, developments in case law and closing of statutes of limitation. Within the next twelve months, the Company
believes that the resolution of certain federal, foreign and state and local examinations are reasonably possible and that a change
in estimate, reducing unrecognized tax benefits, may occur. While such a change may be significant, it is not possible to provide
a range of the potential change until the examinations progress further or the related statutes of limitation expire. The Company
has effectively settled its U.S. federal income tax obligations through 2008. With limited exception, the Company is no longer
subject to state and local or foreign examinations by tax authorities for years before 2006.
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,
2014, 2013 and 2012, the Company recorded tax-related interest income of $4 million, $4 million and $1 million, respectively, in
its consolidated statement of operations. At December 31, 2014 and 2013, the Company had a net income tax-related interest
payable of $15 million and $17 million, respectively, in its consolidated balance sheet. At December 31, 2014 and 2013, the
amounts the Company had recognized for penalties payable in its consolidated balance sheet were not significant.
Note 18. 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 are based on complex claims involving substantial uncertainties and unascertainable damages.
Accordingly, except as discussed below, it is not possible to determine the probability of loss or estimate damages, and therefore,
MasterCard has not established reserves for any of these proceedings. When the Company determines that a loss is both probable
and estimable, MasterCard records a liability and discloses the amount of the liability if it is material. When a material loss
contingency is only reasonably possible, MasterCard does not record a liability, but instead discloses the nature and the amount
of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated below with
respect to these matters, MasterCard cannot provide an estimate of the possible loss or range of loss based on one or more of the
following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the amounts are
unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of pending appeals or
motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings of multiple defendants
or potential defendants whose share of any potential financial responsibility has yet to be determined, and/or (6) there are novel
legal issues presented. Furthermore, except as identified with respect to the matters below, MasterCard does not believe that the
outcome of any existing legal or regulatory proceedings to which it is a party will have a material adverse effect on its results of
operations, financial condition or overall business. However, with respect to the matters discussed below, an adverse judgment
or other outcome or settlement with respect to any such proceedings could result in fines or payments by MasterCard and/or could
require MasterCard to change its business practices. In addition, an adverse outcome in a regulatory proceeding could lead to the