DELPHI 2014 Annual Report Download - page 45

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If we are unsuccessful in contesting the IRS’ s assertion that Delphi Automotive LLP and, as a result, Delphi
Automotive PLC, should be treated as domestic corporations for U.S. federal income tax purposes, there could be a
material impact on our future tax liability.
On May 19, 2011, Delphi Automotive PLC was formed as a Jersey public limited company, and had nominal assets, no
liabilities and had conducted no operations prior to its initial public offering. On November 22, 2011, in conjunction with the
completion of its initial public offering by the selling shareholders, all of the outstanding equity of Delphi Automotive LLP was
exchanged for ordinary shares in Delphi Automotive PLC. As a result, Delphi Automotive LLP became a wholly-owned
subsidiary of Delphi Automotive PLC. Delphi Automotive PLC is a U.K. resident taxpayer and as such is not generally subject
to U.K. tax on remitted foreign earnings.
Delphi Automotive LLP, which acquired certain assets in a bankruptcy court approved transaction (the "Bankruptcy
Plan") on October 6, 2009 (the "Acquisition Date"), was established on August 19, 2009 as a limited liability partnership
incorporated under the laws of England and Wales. At the time of its formation, Delphi Automotive LLP elected to be treated as
a partnership for U.S. federal income tax purposes. On June 24, 2014, the Internal Revenue Service (the “IRS”) issued us a
Notice of Proposed Adjustment (the "NOPA") asserting that it believes Section 7874(b) of the Internal Revenue Code applies to
Delphi Automotive LLP and that it should be treated as a domestic corporation for U.S. federal income tax purposes,
retroactive to the Acquisition Date. If Delphi Automotive LLP is treated as a domestic corporation for U.S. federal income tax
purposes, the Company expects that, although Delphi Automotive PLC is incorporated under the laws of Jersey and a tax
resident in the U.K., it would also be treated as a domestic corporation for U.S. federal income tax purposes.
Delphi Automotive LLP filed U.S. federal partnership tax returns for 2009, 2010, and 2011. The IRS’s NOPA asserts that
Section 7874(b) applies to Delphi Automotive LLP’s acquisition of certain assets pursuant to the Bankruptcy Plan, and
consequently, Delphi Automotive LLP should be treated as a domestic corporation for U.S. federal income tax purposes.
Notwithstanding the issuance of the NOPA, we continue to believe, after consultation with counsel, that neither Delphi
Automotive LLP nor Delphi Automotive PLC should be treated as a domestic corporation for U.S. federal income tax purposes.
We intend to vigorously contest the conclusions reached in the NOPA through the IRS’s administrative appeals process, and, if
we are unable to reach a satisfactory resolution with the IRS, through litigation. Accordingly, we will continue to prepare and
file our financial statements on the basis that neither Delphi Automotive LLP nor Delphi Automotive PLC is a domestic
corporation for U.S. federal income tax purposes. We have not recorded any adjustments with respect to this matter, nor have
we recorded any adjustments in connection with receiving the NOPA. However, while we believe that we should prevail, no
assurance can be given that we will be able to reach a satisfactory resolution with the IRS or that, if we were to litigate, a court
will agree with our position. Further, the ultimate resolution of this issue could take significant time and resources.
If these entities are treated as domestic corporations for U.S. federal income tax purposes, the Company will be subject to
U.S. federal income tax on its worldwide taxable income, including distributions, as well as deemed income inclusions from
some of its non-U.S. subsidiaries. This could have a material adverse impact on our income tax liability in the future. As a U.S.
company, any dividends we pay to non-U.S. shareholders could also be subject to U.S. federal income tax withholding at a rate
of 30% (unless reduced or eliminated by an income tax treaty), and it is possible that tax may be withheld on such dividends in
certain circumstances even before a final determination has been made with respect to the Company's U.S. income tax status. In
addition, we could be liable for the failure by Delphi Automotive LLP to withhold U.S. federal income taxes on distributions to
its non-U.S. members for periods beginning on or after the Acquisition Date. If we are unsuccessful in contesting the IRS’s
assertion, we expect any unfavorable final outcome to adversely impact our tax position, most significantly in future periods,
by increasing our effective tax rate to approximately 20% to 22%. For the year ended December 31, 2014, our effective tax rate
was 17%.
Taxing authorities could challenge our historical and future tax positions.
The amount of tax we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We
have taken and will continue to take tax positions based on our interpretation of such tax laws. In particular, we will seek to run
ourselves in such a way that we are and remain tax resident in the United Kingdom. While we believe that we have complied
with all applicable tax laws, there can be no assurance that a taxing authority will not have a different interpretation of the law
and assess us with additional taxes. Should additional taxes be assessed, this may result in a material adverse effect on our
results of operations and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have no unresolved SEC staff comments to report.