Prudential 2015 Annual Report Download - page 183

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
The Company’s unrecognized tax benefits for the years ended December 31 are as follows:
2015 2014 2013
(in millions)
Balance at January 1, ......................................................................................... $6 $11 $19
Increases in unrecognized tax benefits—prior years ................................................................. 0 0 0
(Decreases) in unrecognized tax benefits—prior years ............................................................... 0 0 (7)
Increases in unrecognized tax benefits—current year ................................................................ 0 0 0
(Decreases) in unrecognized tax benefits—current year .............................................................. 0 0 0
Settlements with taxing authorities .............................................................................. 0 (5) (1)
Balance at December 31, ...................................................................................... $6 $ 6 $11
Unrecognized tax benefits that, if recognized, would favorably impact the effective rate .................................... $6 $ 6 $11
The Company does not anticipate any significant changes within the next twelve months to its total unrecognized tax benefits related
to tax years for which the statute of limitations has not expired.
The Company classifies all interest and penalties related to tax uncertainties as income tax expense (benefit). The amounts recognized
in the consolidated financial statements for tax-related interest and penalties for the years ended December 31 are as follows:
2015 2014 2013
(in millions)
Interest and penalties recognized in the consolidated statements of operations ............................................ $0 $2 $1
2015 2014
(in millions)
Interest and penalties recognized in liabilities in the consolidated statements of financial position ................................... $4 $4
Listed below are the tax years that remain subject to examination, by major tax jurisdiction, as of December 31, 2015:
Major Tax Jurisdiction Open Tax Years
United States .................... 2007—2015
Japan .......................... Fiscal years ended March 31, 2011—2015
Korea .......................... Fiscal years ended March 31, 2011—2013, the periods ended December 31, 2014 and 2015
For tax years 2007 through 2016, the Company is participating in the IRS’s Compliance Assurance Program (“CAP”). Under CAP,
the IRS assigns an examination team to review completed transactions as they occur in order to reach agreement with the Company on how
they should be reported in the relevant tax returns. If disagreements arise, accelerated resolutions programs are available to resolve the
disagreements in a timely manner before the tax return is filed.
Certain of the Company’s affiliates in Japan file a consolidated tax return, while others file separate tax returns. The Company’s
affiliates in Japan are subject to audits by the local taxing authority. The general statute of limitations is five years from when the return is
filed. During 2013, the Tokyo Regional Taxation Bureau concluded a routine tax audit of the tax returns of the Company’s affiliates in
Japan for their tax years ended March 31, 2009 to March 31, 2012. During 2015, the Tokyo Regional Taxation Bureau notified the
Company that it will conduct a routine tax audit of the Company’s affiliates in Japan. These activities had no material impact on the
Company’s 2013, 2014 or 2015 results.
The Company’s affiliates in South Korea file separate tax returns and are subject to audits by the local taxing authority. The general
statute of limitations is five years from when the return is filed. During 2014, the Korean National Tax Service concluded a routine tax
audit of the tax returns of Prudential of Korea for the tax years ended March 31, 2010 to March 31, 2012. These activities had no material
impact on the Company’s 2013, 2014 or 2015 results.
20. FAIR VALUE OF ASSETS AND LIABILITIES
Fair Value Measurement—Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The authoritative fair value guidance establishes a framework for
measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The level in the fair value hierarchy
within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value
measurement. The levels of the fair value hierarchy are as follows:
Level 1—Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or
liabilities. The Company’s Level 1 assets and liabilities primarily include certain cash equivalents and short-term investments, equity
securities and derivative contracts that trade on an active exchange market.
Level 2—Fair value is based on significant inputs, other than quoted prices included in Level 1, that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market
data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that
Prudential Financial, Inc. 2015 Annual Report 181