Dow Chemical 2009 Annual Report Download - page 177

Table of Contents
The tax rate for 2009 was reduced by several factors: a significantly higher level of equity earnings as a percent of total earnings, favorable accrual-to-
return adjustments in various geographies, the recognition of domestic losses and an improvement in financial results in jurisdictions with tax rates that are
lower than the U.S. statutory rate. These factors resulted in an effective tax rate of negative 20.7 percent for 2009.
The tax rate for 2008 was negatively impacted by increased foreign taxes, declining financial results in jurisdictions with lower tax rates than the
United States and goodwill impairment losses that are not deductible for tax purposes (see Note I). Additionally, during 2008, the Company determined
that it was more likely than not that certain tax loss carryforwards in the United States and Asia Pacific would not be utilized due to deteriorating market
conditions for the Company’s products in these areas, which resulted in increases in valuation allowances of $48 million in the United States and
$24 million in Asia Pacific. These events resulted in an effective tax rate for 2008 that was higher than the U.S. statutory rate. The Company’s reported
effective tax rate for 2008 was 51.0 percent.
The tax rate for 2007 was negatively impacted by a change in German tax law that was enacted in August and included a reduction in the German
income tax rate, which was effective January 1, 2008. As a result of the change, the Company adjusted the value of its net deferred tax assets in
Germany (using the lower tax rate) and recorded a charge of $362 million against the “Provision for income taxes” in the third quarter of 2007.
Additionally, during 2007, the Company determined that it was more likely than not that certain tax loss carryforwards in the United States and Brazil
would be utilized due to positive financial performance, adherence to fiscal discipline and improved forecasted earnings, which resulted in net reversals
of valuation allowances of $71 million related to the United States and $45 million related to Brazil. In addition, the Company changed the legal
ownership structure of its investment in EQUATE, resulting in a favorable impact to the “Provision for income taxes” of $113 million in the fourth
quarter of 2007. These events, combined with enacted changes in the tax rates in Canada and Italy, strong financial results in jurisdictions with lower tax
rates than the United States and improved earnings from a number of the Company’s joint ventures, partially offset by the impact of uncertain tax
positions, resulted in an effective tax rate for 2007 that was lower than the U.S. statutory rate. The Company’s reported effective tax rate for 2007 was
29.3 percent.
Domestic and Foreign Components of Income from Continuing Operations Before
Income Taxes
In millions 2009 2008 2007
Domestic $ (290) $ (1,290) $ 192
Foreign 759 2,567 4,000
Total $ 469 $ 1,277 $ 4,192
Reconciliation to U.S. Statutory Rate
In millions 2009 2008 2007
Taxes at U.S. statutory rate $ 164 $ 447 $ 1,467
Equity earnings effect (266) (309) (396)
Change in legal ownership structure of EQUATE - - (113)
Foreign income taxed at rates other than 35% (1) (121) 261 (686)
German tax law change - - 362
U.S. tax effect of foreign earnings and dividends 210 164 480
Goodwill impairment losses 3 75 -
Change in valuation allowances 9 60 (124)
Unrecognized tax benefits 21 31 166
Federal tax accrual adjustments (119) 29 5
Other – net 2 (107) 69
Total tax provision $ (97) $ 651 $ 1,230
Effective tax rate (20.7)% 51.0% 29.3%
(1) Includes the tax provision for statutory taxable income in foreign jurisdictions for which there is no corresponding amount in “Income from
Continuing Operations Before Income Taxes.”
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