Pizza Hut 2011 Annual Report Download - page 189

85
Jurisdiction
U.S. Federal
China
United Kingdom
Mexico
Australia
Open Tax Years
2004 – 2011
2008 – 2011
2003 – 2011
2005 – 2011
2007 – 2011
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 31, 2011, each of which is individually insignificant.
The accrued interest and penalties related to income taxes at December 31, 2011 and December 25, 2010 are set forth below:
Accrued interest and penalties
2011
$ 53
2010
$ 48
During 2011, 2010 and 2009, a net benefit of $2 million, expense of $13 million and expense of $6 million, respectively, for
interest and penalties was recognized in our Consolidated Statements of Income as components of its income tax provision.
On June 23, 2010, the Company received a Revenue Agent Report 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 $170 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 2011, computed on a similar basis to the 2004-2006 additional
taxes, would be approximately $350 million plus net interest to date of approximately $25 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