Amgen 2013 Annual Report Download - page 96

The reconciliation of the total gross amounts of UTBs (excluding interest, penalties, foreign tax credits and the federal tax benefit of state taxes related to
UTBs) for the years ended December 31, 2013, 2012 and 2011 is as follows (in millions):



Balance at beginning of year $1,200
$975
$ 920
Additions based on tax positions related to the current year 335
300
283
Additions based on tax positions related to prior years 96
5
1
Reductions for tax positions of prior years (192)
(50)
(8)
Settlements (24)
(30)
(221)
Balance at end of year $1,415
$1,200
$975
Substantially all of the UTBs as of December 31, 2013, if recognized, would affect our effective tax rate. During the year ended December 31, 2013, we
settled our examination with the Internal Revenue Service (IRS) for the years ended December 31, 2007, 2008, and 2009. During the year ended December 31,
2012, we settled examinations with various state and foreign tax authorities for prior tax years. During the year ended December 31, 2011, we settled our
examination with the IRS related to certain transfer pricing tax positions for the years ended December 31, 2007, 2008 and 2009. As a result of these
developments, we remeasured our UTBs accordingly. As of December 31, 2013, we believe it is reasonably possible that our gross liabilities for UTBs may
decrease by approximately $70 million within the succeeding twelve months due to the resolution of state audits.
Interest and penalties related to UTBs are included in our provision for income taxes. During 2013, 2012 and 2011, we accrued approximately $32
million, $30 million and $23 million, respectively, of interest and penalties through the income tax provision in the Consolidated Statements of Income. At
December 31, 2013 and 2012, accrued interest and penalties associated with UTBs totaled approximately $99 million and $102 million, respectively.
The reconciliation between the federal statutory tax rate applied to income before income taxes and our effective tax rate for the years ended December 31,
2013, 2012 and 2011, is as follows:



Federal statutory tax rate 35.0 %
35.0 %
35.0 %
Foreign earnings, including earnings invested indefinitely (21.3)%
(17.8)%
(19.4)%
Credits, Puerto Rico Excise Tax (4.7)%
(5.2)%
(6.5)%
Credits, primarily federal R&D (3.0)%
— %
(1.5)%
State taxes 0.8 %
0.6 %
0.7 %
Audit settlements (federal, state, foreign) (3.7)%
0.3 %
— %
Legal settlements — %
(0.2)%
2.2 %
Other, net 0.4 %
0.6 %
0.8 %
Effective tax rate 3.5 %
13.3 %
11.3 %
The effective tax rates for the years ended December 31, 2013, 2012 and 2011, are different from the federal statutory rates primarily as a result of
indefinitely invested earnings of our foreign operations. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are
intended to be invested indefinitely outside the United States. Substantially all of the benefit from foreign earnings on our effective tax rate results from foreign
income associated with the Company’s operation conducted in Puerto Rico that is subject to a tax incentive grant that expires in 2020. At December 31, 2013,
the cumulative amount of these earnings was approximately $25.5 billion. If these earnings were repatriated to the United States, we would be required to
accrue and pay approximately $9.1 billion of additional income taxes based on the current tax rates in effect.
Our total foreign income before income taxes was approximately $3.7 billion, $3.3 billion and $3.0 billion for the years ended December 31, 2013, 2012
and 2011, respectively.
Puerto Rico imposes an excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico. The rate was
4.0% in 2011, 3.75% in 2012, 2.75% in the first half of 2013 and 4.0% effective July 1, 2013 through December 31, 2017. We account for the excise tax as a
manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise
tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.
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