Prudential 2015 Annual Report Download - page 53

Income Taxes
Shown below is our income tax provision for the years ended December 31, 2015, 2014 and 2013, separately reflecting the impact of
certain significant items.
Year ended December 31,
2015 2014 2013
(in millions)
Tax provision (benefit) ................................................................................. $2,072 $ 349 $(1,058)
Impact of:
Non-taxable investment income ...................................................................... 341 381 319
Foreign taxes at other than U.S. rate ................................................................... 51 (146) 38
Low income housing and other tax credits .............................................................. 116 127 105
Reversal of acquisition opening balance sheet deferred tax items ............................................ 0 (53) (55)
Change in repatriation assertion ...................................................................... 3 (32) 0
Minority interest .................................................................................. 24 19 37
Medicare Part D ................................................................................... 10 (3) 43
Change in law: active financing exception .............................................................. 108 0 2
Other ........................................................................................... (6) (26) (20)
Tax provision (benefit) excluding these items ................................................................ $2,719 $ 616 $ (589)
2015 to 2014 Annual Comparison. Our income tax provision, on a consolidated basis, amounted to an income tax expense of $2,072
million in 2015 compared to an expense of $349 million in 2014. The increased expense was primarily due to an increase in “Income (loss)
from continuing operations before income taxes and equity in earnings of operating joint ventures” in 2015 compared to 2014. In addition,
during the fourth quarter of 2014, we changed the repatriation assertion for our Japanese insurance companies with respect to post-2013
operating earnings and AOCI, except realized and unrealized capital gains and losses. On March 31, 2015, the government of Japan
enacted an approximately two percentage points reduction in the Japanese tax rate, effective April 1, 2015. Our income tax provision for
2015 reflects a tax benefit from the lower Japan tax rate for indefinitely reinvested earnings of our Japanese insurance operations, partially
offset by $75 million of additional tax expense related to the revaluation of Japan’s deferred tax asset. In addition, in December 2015,
Congress enacted legislation renewing the Active Financing Exception (“AFE”), retroactive to January 1, 2015 and making the provision a
permanent part of the U.S. tax code. As a result of the change in tax law, deferred tax liabilities associated with Prudential of Korea’s and
Prudential of Taiwan’s unrealized investment gains were reversed in the fourth quarter of 2015, and an additional tax benefit of $108
million was reflected in our income tax provision for 2015.
Our income tax provision related to foreign operations, on a consolidated basis, amounted to an income tax expense of $742 million in
2015 compared to an income tax benefit of $456 million in 2014. The foreign operations income tax expense increased primarily due to the
increase in foreign operations pre-tax income from continuing operations before income taxes and equity in earnings of operating joint
ventures partially offset by the impact of tax rate changes in Japan during 2014 and 2015.
2014 to 2013 Annual Comparison. Our income tax provision, on a consolidated basis, amounted to an income tax expense of $349
million in 2014 compared to a benefit of $1,058 million in 2013. Our income tax provision for 2014 and 2013 included $53 million and $55
million, respectively, of an additional U.S. tax expense related to the realization of a portion of the local deferred tax assets existing on the
opening day balance sheet for the Star and Edison Businesses and Prudential Gibraltar Financial Life Insurance Company, Ltd. (“Prudential
Gibraltar”). The local utilization of the deferred tax asset coupled with the repatriation assertion related to the applicable earnings of our
Japanese entities creates the effect of a “double tax” for U.S. GAAP purposes, even though the tax will only be paid once. In addition, the
U.S. tax expense for 2014 reflected a change in repatriation assertion for our Japanese insurance companies, as described above, and as a
result, foreign taxes at other than the U.S. rate for 2014 reflected the lower local country rate for permanently reinvested earnings of our
Japanese insurance operations. The U.S. tax expense for 2013 reflected a change in repatriation assertion for Gibraltar Life and Prudential
Gibraltar. During 2013, we determined that in addition to U.S. GAAP earnings, we would repatriate an additional amount from Gibraltar
Life and Prudential Gibraltar, but that such additional amount would not exceed the deferred tax assets recorded in the Statement of
Financial Position as of the acquisition date for Prudential Gibraltar and the Star and Edison Businesses. Excluding the impact of the
“double tax” and the 2014 change in repatriation assertion for our Japanese insurance companies, the 2014 income tax expense increased
primarily due to the increase in “Income (loss) from continuing operations before income taxes and equity in earnings of operating joint
ventures”.
Our income tax provision related to foreign operations, on a consolidated basis, amounted to an income tax benefit of $456 million in
2014 compared to an income tax benefit of $826 million in 2013. Our foreign operations income tax provision for 2013 included $108
million of an additional tax expense from the re-measurement of deferred tax liabilities resulting from the Japan corporate income tax rate
reduction. However, since the 2013 earnings of our Japanese operations were treated as being subject to repatriation, our domestic tax
provision in 2013 included $108 million of an additional tax benefit resulting from the increase or decrease in the future foreign tax credit
benefit and, as a result, the reduction in the Japan corporate tax rate had no impact on our overall income tax provision in 2013. Excluding
the impact from the Japan corporate income tax rate reduction, the foreign operations income tax benefit decreased primarily due to the
decrease in foreign operations pre-tax loss from continuing operations before income taxes and equity in earnings of operating joint
ventures.
We employ various tax strategies, including strategies to minimize the amount of taxes resulting from realized capital gains. For
additional information regarding income taxes, see Note 19 to the Consolidated Financial Statements.
Prudential Financial, Inc. 2015 Annual Report 51