Canon 2011 Annual Report Download - page 83

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Strategy Business Units Management System FINANCIAL SECTION
81
!37 !101
FINANCIAL SECTION
Income taxes have not been accrued on undistributed
earnings of domestic subsidiaries as the tax law provides a
means by which the dividends from a domestic subsidiary
can be received tax free.
Canon has not recognized deferred tax liabilities of
¥18,112 million ($232,205 thousand) for a portion of undis-
tributed earnings of foreign subsidiaries that arose for the
year ended December 31, 2011 and prior years because
Canon currently does not expect to have such amounts dis-
tributed or paid as dividends to the Company in the
foreseeable future. Deferred tax liabilities will be recognized
when Canon expects that it will realize those undistributed
earnings in a taxable manner, such as through receipt of
dividends or sale of the investments. At December 31, 2011,
such undistributed earnings of these subsidiaries were
¥869,064 million ($11,141,846 thousand).
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at beginning of year
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with tax authorities
Additions from acquisitions
Other
Balance at end of year
2010 2009
Millions of yen
Thousands of
U.S. dollars
2011
¥13,235
73
805
(8,354)
(2,471)
4,066
(1,319)
¥6,035
2011
¥
6,035
149
431
(2,139)
(1,264)
—
(279)
¥
2,933
¥12,689
—
1,442
(1,106)
—
—
210
¥13,235
$77,372
1,910
5,526
(27,423)
(16,205)
—
(3,577)
$37,603
Years ended December 31
The total amounts of unrecognized tax benefits that
would reduce the effective tax rate, if recognized, are ¥2,809
million ($36,013 thousand) and ¥6,035 million at December
31, 2011 and 2010, respectively.
Although Canon believes its estimates and assumptions
of unrecognized tax benefits are reasonable, uncertainty
regarding the final determination of tax audit settlements
and any related litigation could affect the effective tax rate
in the future period. Based on each of the items of which
Canon is aware at December 31, 2011, no significant
changes to the unrecognized tax benefits are expected
within the next twelve months.
Canon recognizes interest and penalties accrued related to
unrecognized tax benefits in income taxes. Both interest and
penalties accrued at December 31, 2011 and 2010, and inter-
est and penalties included in income taxes for the years
ended December 31, 2011, 2010 and 2009 are not material.
Canon files income tax returns in Japan and various for-
eign tax jurisdictions. In Japan, Canon is no longer subject to
regular income tax examinations by the tax authority for
years before 2010. While there has been no specific indication
by the tax authority that Canon will be subject to a transfer
pricing examination in the near future, the tax authority
could conduct a transfer pricing examination for years after
2003. In other major foreign tax jurisdictions, including the
United States and Netherlands, Canon is no longer subject to
income tax examinations by tax authorities for years before
2004 with few exceptions. The tax authorities are currently
conducting income tax examinations of Canon’s income tax
returns for years after 2003 in major foreign tax jurisdictions.
14. LEGAL RESERVE AND RETAINED EARNINGS
The Corporation Law of Japan provides that an amount equal
to 10% of distributions from retained earnings paid by the
Company and its Japanese subsidiaries be appropriated as a
legal reserve. No further appropriations are required when
the total amount of the additional paid-in capital and the
legal reserve equals 25% of their respective stated capital. The
Corporation Law of Japan also provides that additional paid-
in capital and legal reserve are available for appropriations
by the resolution of the stockholders. Certain foreign sub-
sidiaries are also required to appropriate their earnings to
legal reserves under the laws of the respective countries.
Cash dividends and appropriations to the legal reserve
charged to retained earnings for the years ended December
31, 2011, 2010 and 2009 represent dividends paid out during
those years and the related appropriations to the legal
reserve. Retained earnings at December 31, 2011 did not
reflect current year-end dividends in the amount of ¥72,092
million ($924,256 thousand) which were approved by the
stockholders in March 2012.
The amount available for dividends under the Corporation
Law of Japan is based on the amount recorded in the Company’s
nonconsolidated books of account in accordance with financial
accounting standards of Japan. Such amount was ¥1,223,401
million ($15,684,628 thousand) at December 31, 2011.
Retained earnings at December 31, 2011 included Canon’s
equity in undistributed earnings of affiliated companies
accounted for by the equity method in the amount of ¥16,217
million ($207,910 thousand).