Blizzard 2015 Annual Report Download - page 85

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67
practicable because of the complexity of the hypothetical calculation. In the event of a distribution of these earnings to the U.S. in the
form of a dividend, we may be subject to both foreign withholding taxes and U.S. income taxes net of allowable foreign tax credits.
Vivendi Games results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreign
state and local income tax returns filed by Vivendi or its affiliates while Vivendi Games results for the period from July 10, 2008
through December 31, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by
Activision Blizzard. Vivendi Games tax year 2008 remains open to examination by the major taxing authorities. In addition, Vivendi
Games’ tax return for the 2008 tax year is before the appeals function of the IRS and is under examination by several state taxing
authorities.
Activision Blizzard’s tax years 2008 through 2014 remain open to examination by the major taxing jurisdictions to which we are
subject. The IRS is currently examining the Company’s federal tax returns for the 2008 through 2011 tax years. During the second
quarter of 2015, the Company transitioned the review of its transfer pricing methodology from the advanced pricing agreement review
process to the IRS examination team. Their review could result in a different allocation of profits and losses under the Company’s
transfer pricing agreements. Such allocation could have a positive or negative impact on our provision for the period in which such a
determination is reached and the relevant periods thereafter. The Company also has several state and non-U.S. audits pending.
As of December 31, 2015, we had approximately $552 million of gross unrecognized tax benefits, of which $529 million would affect
our effective tax rate if recognized. A reconciliation of total gross unrecognized tax benefits for the years ended December 31, 2015,
2014, and 2013 is as follows (amounts in millions):
For the Years Ended
December 31,
2015
2014
2013
Unrecognized tax benefits balance at January 1 ..........................................................
$ 419
$ 294
$ 207
Gross increase for tax positions of prior-years ............................................................
8
2
1
Gross decrease for tax positions of prior-years ...........................................................
(11)
—
—
Gross increase for tax positions of current year ..........................................................
136
125
91
Settlement with taxing authorities ...............................................................................
—
(2)
—
Lapse of statute of limitations ......................................................................................
—
—
(5)
Unrecognized tax benefits balance at December 31 ....................................................
$ 552
$ 419
$ 294
We recognize interest and penalties related to uncertain tax positions in “Income tax expense”. As of December 31, 2015 and 2014,
we had approximately $41 million and $18 million, respectively, of accrued interest and penalties related to uncertain tax positions.
For the year ended December 31, 2015, 2014, and 2013, we recorded $10 million, $5 million, and $2 million, respectively, of interest
expense related to uncertain tax positions.
Based on the current status with the IRS, there is insufficient information to identify any significant changes in unrecognized tax
benefits in the next twelve months. However, the Company may recognize a benefit of up to approximately $18 million related to the
settlement of tax audits and/or the expiration of statutes of limitations in the next twelve months.
Although the final resolution of the Company’s global tax disputes, audits, or any particular issue with the applicable taxing authority
is uncertain, based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters will
not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, any
settlement or resolution of the Company’s global tax disputes, audits, or any particular issue with the applicable taxing authority could
have a material favorable or unfavorable effect on our business and results of operations in the period in which the matters are
ultimately resolved.
10-K Activision_Master_032416_PrinterMarksAdded.pdf 67 3/24/16 11:00 PM