Western Union 2010 Annual Report Download - page 105

the Company generally has responsibility for taxes associated with these potential Company-related adjustments
under the tax allocation agreement with First Data executed at the time of the Spin-off. The Company agrees with a
number of the adjustments in the Notice of Deficiency; however, the Company does not agree with the Notice of
Deficiency regarding several substantial adjustments representing total alleged additional tax and penalties due of
approximately $114 million. As of December 31, 2010, interest on the alleged amounts due for unagreed
adjustments would be approximately $36 million. A substantial part of the alleged amounts due for these
unagreed adjustments relates to the Company’s international restructuring, which took effect in the fourth
quarter of 2003, and accordingly, the alleged amounts due related to such restructuring largely are attributable
to 2004. On March 20, 2009, the Company filed a petition in the United States Tax Court contesting those
adjustments with which it does not agree. In September 2010, IRS Counsel referred the case to the IRS Appeals
Division for possible settlement. The Company believes its overall reserves are adequate, including those associated
with the adjustments alleged in the Notice of Deficiency. If the IRS’ position in the Notice of Deficiency is
sustained, the Company’s tax provision related to 2003 and later years would materially increase. An examination of
the United States federal consolidated income tax returns of First Data that cover the Company’s 2005 and pre-spin-
off 2006 taxable periods is ongoing, as is an examination of the Company’s United States federal consolidated
income tax returns for the 2006 post-spin-off period, 2007 and 2008. The Irish income tax returns of certain
subsidiaries for the years 2006 and forward are eligible to be examined by the Irish tax authorities, although no
examinations have commenced.
At December 31, 2010, no provision had been made for United States federal and state income taxes on foreign
earnings of approximately $2.5 billion, which are expected to be reinvested outside the United States indefinitely.
Upon distribution of those earnings to the United States in the form of actual or constructive dividends, the
Company would be subject to United States income taxes (subject to an adjustment for foreign tax credits), state
income taxes and possible withholding taxes payable to various foreign countries. Determination of this amount of
unrecognized deferred United States tax liability is not practicable because of the complexities associated with its
hypothetical calculation.
Tax Allocation Agreement with First Data
The Company and First Data each are liable for taxes imposed on their respective businesses both prior to and
after the Spin-off. If such taxes have not been appropriately apportioned between First Data and the Company,
subsequent adjustments may occur that may impact the Company’s financial position or results of operations.
Also under the tax allocation agreement, with respect to taxes and other liabilities that result from a final
determination that is inconsistent with the anticipated tax consequences of the Spin-off (as set forth in the private
letter ruling and relevant tax opinion) (“Spin-off Related Taxes”), the Company will be liable to First Data for any
such Spin-off Related Taxes attributable solely to actions taken by or with respect to the Company. In addition, the
Company will also be liable for half of any Spin-off Related Taxes (i) that would not have been imposed but for the
existence of both an action by the Company and an action by First Data or (ii) where the Company and First Data
each take actions that, standing alone, would have resulted in the imposition of such Spin-off Related Taxes. The
Company may be similarly liable if it breaches certain representations or covenants set forth in the tax allocation
agreement. If the Company is required to indemnify First Data for taxes incurred as a result of the Spin-off being
taxable to First Data, it likely would have a material adverse effect on the Company’s business, financial position
and results of operations. First Data generally will be liable for all Spin-off Related Taxes, other than those
described above.
11. Employee Benefit Plans
Defined Contribution Plans
The Western Union Company Incentive Savings Plan (“401(k)”) covers eligible employees on the United States
payroll of the Company. Employees who make voluntary contributions to this plan receive up to a 4% Company
matching contribution. All matching contributions are immediately vested.
On September 30, 2009, the Company merged its defined contribution plan covering its former union employees
and transferred the plan assets into the 401(k).
103