Canon 2012 Annual Report Download - page 79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 77
Millions of yen
Thousands of
U.S. dollars
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
¥22,604 million ($259,816 thousand) for a portion of undis-
tributed earnings of foreign subsidiaries that arose for the
year ended December 31, 2012 and prior years because
Canon currently does not expect to have such amounts
distributed or paid as dividends to the Company in the fore-
seeable future. Deferred tax liabilities will be recognized
when Canon expects that it will realize those undistrib-
uted earnings in a taxable manner, such as through receipt
of dividends or sale of the investments. At December 31,
2012, such undistributed earnings of these subsidiaries were
¥894,850 million ($10,285,632 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
2011 2010 2012
¥ 6,035
149
431
(2,139)
(1,264)
—
(279)
¥ 2,933
2012
¥ 2,933
869
4,903
(1,546)
(41)
—
593
¥ 7,711
¥ 13,235
73
805
(8,354)
(2,471)
4,066
(1,319)
¥ 6,035
$ 33,713
9,989
56,356
(17,770)
(471)
—
6,815
$ 88,632
Years ended December 31
The total amounts of unrecognized tax benefits that
would reduce the effective tax rate, if recognized, are ¥7,711
million ($88,632 thousand) and ¥2,809 million at December
31, 2012 and 2011, respectively.
Although Canon believes its estimates and assumptions
of unrecognized tax benefits are reasonable, uncertainty
regarding the final determination of tax audit settle-
ments 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, 2012, no signifi-
cant 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, 2012 and 2011, and
interest and penalties included in income taxes for the years
ended December 31, 2012, 2011 and 2010 are not material.
Canon files income tax returns in Japan and various foreign
tax jurisdictions. In Japan, Canon is no longer subject to regular
income tax examinations by the tax authority for years before
2012. While there has been no specific indication by the tax
authority that Canon will be subject to a transfer pricing exam-
ination 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 the Netherlands, Canon is no longer subject to income
tax examinations by tax authorities for years before 2006 with
few exceptions. The tax authorities are currently conducting
income tax examinations of Canon’s income tax returns for
years after 2005 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 subsid-
iaries 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, 2012, 2011 and 2010 represent dividends paid out dur-
ing those years and the related appropriations to the legal
reserve. Retained earnings at December 31, 2012 did not
reflect current year-end dividends in the amount of ¥80,695
million ($927,529 thousand) which were approved by the
stockholders in March 2013.
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 generally accepted accounting standards of Japan. Such
amount was ¥1,090,834 million ($12,538,322 thousand) at
December 31, 2012.
Retained earnings at December 31, 2012 included Canon’s
equity in undistributed earnings of affiliated companies
accounted for by the equity method in the amount of ¥17,094
million ($196,483 thousand).