Morgan Stanley 2014 Annual Report Download - page 94

In June 2014 and June 2013, MUMSS paid a dividend of approximately $594 million and $287 million,
respectively, of which the Company received approximately $238 million and $115 million, respectively, for its
proportionate share of MUMSS.
See Note 22 to the Company’s consolidated financial statements in Item 8 for further information.
Income Tax Matters.
In 2014, the Company recognized an aggregate discrete net tax benefit of $2,226 million. This discrete net tax
benefit consisted of: $1,380 million primarily due to the release of a deferred tax liability as a result of a legal
entity restructuring, $609 million principally associated with remeasurement of reserves and related interest due
to new information regarding the status of a multi-year tax authority examination, and $237 million primarily
associated with the repatriation of non-U.S. earnings at a cost lower than originally estimated. In addition, the
Company’s Provision for (benefit from) income taxes was impacted by approximately $900 million of tax
provision as a result of non-deductible expenses related to litigation and regulatory matters.
On October 31, 2014, the Company completed an internal restructuring to simplify its legal entity organization
that included a change in tax status of Morgan Stanley Smith Barney Holdings LLC from a partnership to a
corporation. As a result of this change in tax status, the Company released a deferred tax liability which was
previously established in 2009 as part of the acquisition of Smith Barney through a charge to Additional paid-in
capital. This discrete net tax benefit of $1,390 million was included in Provision for (benefit from) income taxes
in the Company’s consolidated statements of income for 2014, and attributable to its Wealth Management
business segment.
The income of certain foreign subsidiaries earned outside of the U.S. has previously been excluded from taxation
in the U.S. as a result of a provision of U.S. tax law that defers the imposition of tax on certain active financial
services income until such income is repatriated to the U.S. as a dividend. This provision as well as other
provisions that allow for tax benefits from certain tax credits were retroactively extended for one year on
December 19, 2014 as part of the Tax Increase Prevention Act of 2014, and the associated tax benefits were
recognized in Provision for (benefit from) income taxes in the Company’s consolidated statement of income for
2014. For 2015, the increase to the effective tax rate as a result of the expiration of the provisions is estimated to
be immaterial on a quarterly and on an annual basis.
New York State corporate tax reform (the “tax reform”) was signed into law on March 31, 2014. The tax reform,
which is effective for tax years beginning on or after January 1, 2015, merges the existing bank franchise tax into
a substantially amended general corporation franchise tax and adopts customer-based single receipts factor for all
New York taxpayers. The tax reform mainly impacts the Company’s banking subsidiaries and did not have a
material impact on the Company’s 2014 annual effective tax rate and consolidated statements of income for
2014.
In 2013, the Company recognized an aggregate discrete net tax benefit of $407 million. This included discrete tax
benefits of: $161 million related to the remeasurement of reserves and related interest associated with new
information regarding the status of certain tax authority examinations; $92 million related to the establishment of
a previously unrecognized deferred tax asset from a legal entity reorganization; $73 million that is attributable to
tax planning strategies to optimize foreign tax credit utilization as a result of the anticipated repatriation of
earnings from certain non-U.S. subsidiaries; and $81 million due to the retroactive effective date of the Relief
Act. The Relief Act that was enacted on January 2, 2013, among other things, extended with retroactive effect to
January 1, 2012 a provision of U.S. tax law that defers the imposition of tax on certain active financial services
income of certain foreign subsidiaries earned outside the U.S. until such income is repatriated to the U.S. as a
dividend.
In 2012, the Company recognized an aggregate net tax benefit of $142 million. This included a discrete tax
benefit of $299 million related to the remeasurement of reserves and related interest associated with either the
expiration of the applicable statute of limitations or new information regarding the status of certain Internal
Revenue Service examinations and an aggregate out-of-period net tax provision of $157 million, to adjust the
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