3M 2014 Annual Report Download - page 77

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A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows:
Federal, State and Foreign Tax
(Millions)
2014
2013
2012
Gross UTB Balance at January 1
$
659
$ 528
$ 594
Additions based on tax positions related to the current year
201
97
80
Additions for tax positions of prior years
30
158
114
Reductions for tax positions of prior years
(74)
(29)
(120)
Settlements
(154)
(17)
(50)
Reductions due to lapse of applicable statute of limitations
(79)
(78)
(90)
Gross UTB Balance at December 31
$
583
$ 659
$ 528
Net UTB impacting the effective tax rate at December 31
$
265
$ 262
$ 185
The total amount of UTB, if recognized, would affect the effective tax rate by $265 million as of December 31, 2014, $262
million as of December 31, 2013, and $185 million as of December 31, 2012. The ending net UTB results from adjusting
the gross balance for items such as Federal, State, and non-U.S. deferred items, interest and penalties, and deductible
taxes. The net UTB is included as components of Other Current Assets, Other Assets, Accrued Income Taxes, and Other
Liabilities within the Consolidated Balance Sheet.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The
Company recognized in the consolidated statement of income on a gross basis approximately $14 million of benefit, $22
million of expense, and $12 million of benefit in 2014, 2013, and 2012, respectively. The amount of interest and penalties
recognized may be an expense or benefit due to new or remeasured unrecognized tax benefit accruals. At December 31,
2014, and December 31, 2013, accrued interest and penalties in the consolidated balance sheet on a gross basis were
$44 million and $62 million, respectively. Included in these interest and penalty amounts are interest and penalties related
to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of
such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of
the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to
the taxing authority to an earlier period.
As a result of certain employment commitments and capital investments made by 3M, income from certain manufacturing
activities in the following countries is subject to reduced tax rates or, in some cases, is exempt from tax for years through
the following: China (2016), Taiwan (2016), Korea (2018), Brazil (2023), Singapore (2023), Switzerland (2024), and
Panama (indefinitely). The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $111
million (17 cents per diluted share) in 2014, $87 million (13 cents per diluted share) in 2013, and $64 million (9 cents per
diluted share) in 2012.
The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have
been considered to be reinvested indefinitely. These earnings relate to ongoing operations and were approximately $11.2
billion as of December 31, 2014. Because of the availability of U.S. foreign tax credits, the multiple avenues in which to
repatriate the earnings to minimize tax cost, and because a large portion of these earnings are not liquid, it is not practical
to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.