Morgan Stanley 2015 Annual Report Download - page 74

Income Tax Matters.
The effective tax rate from continuing operations was 25.9% for 2015. Included in this rate were net discrete tax benefits of
$564 million, primarily associated with the repatriation of non-U.S. earnings at a cost lower than originally estimated due to
an internal restructuring to simplify the legal entity organization in the U.K. Excluding these net discrete tax benefits, the
effective tax rate from continuing operations for 2015 would have been 32.5%, which is reflective of the geographic mix of
earnings.
The effective tax rate from continuing operations was a benefit of 2.5% for 2014. Included in this rate were net discrete tax
benefits of $2,226 million. These net discrete tax benefits consisted of: $1,380 million primarily due to the release of a
deferred tax liability, previously established as part of the acquisition of Smith Barney in 2009 through a charge to
Additional paid-in capital, as a result of the legal entity restructuring that included a change in tax status of Morgan Stanley
Smith Barney Holdings LLC from a partnership to a corporation; $609 million principally associated with the 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.
Excluding these net discrete tax benefits, the effective tax rate from continuing operations for 2014 would have been 59.5%,
which is primarily attributable to approximately $900 million of tax provision from non-deductible expenses for litigation
and regulatory matters.
The effective tax rate from continuing operations was 19.8% for 2013. Included in this rate were net discrete tax benefits of
$407 million. These net discrete tax benefits consisted of: $161 million related to the remeasurement of reserves and related
interest due to new information regarding the status of a multi-year tax authority examination; $92 million related to the
establishment of a previously unrecognized deferred tax asset from a legal entity reorganization; $73 million 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 enactment of the Relief Act, which retroactively extended 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. Excluding these net discrete
tax benefits, the effective tax rate from continuing operations for 2013 would have been 28.7%, which is reflective of the
geographic mix of earnings.
Discretionary Incentive Compensation.
On December 1, 2014, the Compensation, Management Development and Succession Committee (“CMDS Committee”) of
the Company’s Board of Directors (the “Board”) approved an approach for awards of discretionary incentive compensation
for the 2014 performance year to be granted in 2015 that would reduce the average deferral of such awards to an approximate
baseline of 50%. Additionally, the CMDS Committee approved the acceleration of vesting for certain outstanding deferred
cash-based incentive compensation awards. The deferred cash-based incentive compensation awards subject to accelerated
vesting will be distributed on their regularly scheduled future distribution dates and will continue to be subject to cancellation
and clawback provisions. The following table presents the increase in Compensation and benefits expense for the Company
and each of the business segments as a result of these actions in 2014 (“2014 compensation actions”).
2014 Compensation and Benefits Expense.
Institutional
Securities
Wealth
Management
Investment
Management Total
(dollars in millions)
2014 compensation and benefits expense before fourth quarter
actions(1) ......................................... $ 6,882 $ 8,737 $ 1,068 $ 16,687
Fourth quarter actions:
Change in 2014 level of deferrals(2) .................. 610 66 80 756
Acceleration of prior-year cash-based deferred
awards(3) ..................................... 294 22 65 381
Fourth quarter actions total ............................. $ 904 $ 88 $ 145 $ 1,137
2014 compensation and benefits expense .................. $ 7,786 $ 8,825 $ 1,213 $ 17,824
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