Pizza Hut 2010 Annual Report Download - page 207

110
In addition, the Company is subject to various U.S. state income tax examinations, for which, in the aggregate, we had
significant unrecognized tax benefits at December 25, 2010, each of which is individually insignificant.
The accrued interest and penalties related to income taxes at December 25, 2010 and December 26, 2009 are set forth
below:
2010 2009
Accrued interest and
p
enalties
$
48 $ 41
During 2010 and 2009, $13 million and $6 million, respectively, of interest and penalties expense were recognized in our
Consolidated Statement of Income. The Company recognizes accrued interest and penalties related to unrecognized tax
benefits as components of its Income tax provision.
On June 23, 2010, the Company received a Revenue Agent Report (“RAR”) from the Internal Revenue Service (the
“IRS”) relating to its examination of our U.S. federal income tax returns for fiscal years 2004 through 2006. The IRS has
proposed an adjustment to increase the taxable value of rights to intangibles used outside the U.S. that Yum transferred to
certain of its foreign subsidiaries. The proposed adjustment would result in approximately $700 million of additional
taxes plus net interest to date of approximately $150 million. Furthermore, if the IRS prevails it is likely to make similar
claims for years subsequent to fiscal 2006. The potential additional taxes for these later years, through 2010, computed on
a similar basis to the 2004-2006 additional taxes, would be approximately $320 million plus net interest to date of
approximately $20 million.
We believe that the Company has properly reported taxable income and paid taxes in accordance with applicable laws and
that the proposed adjustment is inconsistent with applicable income tax laws, Treasury Regulations and relevant case law.
We intend to defend our position vigorously and have filed a protest with the IRS. As the final resolution of the proposed
adjustment remains uncertain, the Company will continue to provide for its position in this matter based on the tax benefit
that we believe is the largest amount that is more likely than not to be realized upon settlement of this issue. There can be
no assurance that payments due upon final resolution of this issue will not exceed our currently recorded reserve and such
payments could have a material adverse effect on our financial position. Additionally, if increases to our reserves are
deemed necessary due to future developments related to this issue, such increases could have a material, adverse effect on
our results of operations as they are recorded. The Company does not expect resolution of this matter within twelve
months and cannot predict with certainty the timing of such resolution.
Form 10-K