DuPont 2007 Annual Report Download - page 74

An analysis of the company’s effective income tax rate (EITR) follows:
2007 2006 2005
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
Exchange gains/losses
1
(0.9) 0.6 9.4
Domestic operations (3.2) 0.1 (1.4)
Lower effective tax rates on international operations-net (7.5) (12.4) (6.8)
Tax settlements (3.4) (10.4) (1.4)
Lower effective tax rate on export sales -(0.8) (1.0)
The American Jobs Creation Act of 2004 (AJCA)
2
-(0.6) 8.2
Valuation Allowance Release -(5.6) (0.7)
20.0% 5.9% 41.3%
1
Principally reflects the benefit of non-taxable exchange gains resulting from remeasurement of foreign currency denominated monetary
assets and liabilities. Further information about the company’s foreign currency hedging program is included in Note 23 under the heading
Currency Risk.
2
Reflects the tax impact associated with the repatriation of $9.1 billion under the AJCA.
Income before income taxes and minority interests shown below is based on the location of the corporate unit to
which such earnings are attributable. However, since such earnings are often subject to taxation in more than one
country, coupled with the impact of exchange gains/losses, the income tax provision shown above as United States
or international does not correspond to the earnings shown in the following table:
2007 2006 2005
United States (including exports) $1,652 $1,947 $2,795
International $2,091 1,382 768
$3,743 $3,329 $3,563
Under the tax laws of various jurisdictions in which the company operates, deductions or credits that cannot be fully
utilized for tax purposes during the current year may be carried forward or back, subject to statutory limitations, to
reduce taxable income or taxes payable in future or prior years. At December 31, 2007, the tax effect of such
carryforwards/backs, net of valuation allowance approximated $1,415. Of this amount, $1,206 has no expiration
date, $20 expires after 2007 but before the end of 2012 and $189 expires after 2012.
At December 31, 2007, unremitted earnings of subsidiaries outside the United States totaling $9,644 were deemed
to be permanently reinvested. No deferred tax liability has been recognized with regard to the remittance of such
earnings. It is not practical to estimate the income tax liability that might be incurred if such earnings were remitted to
the United States.
Each year the company files hundreds of income tax returns in the various national, state and local income taxing
jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the taxing
authorities. Positions challenged by the taxing authorities may be settled or appealed by the company. As a result,
there is an uncertainty in income taxes recognized in the company’s financial statements in accordance with
SFAS No. 109, “Accounting for Income Taxes” (SFAS 109). In 2006, the FASB issued FIN 48, which clarifies the
application of SFAS 109 by defining criteria that an individual income tax position must meet for any part of the
benefit of that position to be recognized in an enterprise’s financial statements and provides guidance on
measurement, derecognition, classification, accounting for interest and penalties, accounting in interim periods,
disclosure, and transition.
In accordance with the transition provisions, the company adopted FIN 48 effective January 1, 2007. This resulted in
a $116 reduction in the previously accrued liabilities and a corresponding $116 increase in Reinvested earnings at
January 1, 2007. In accordance with FIN 48, the total amount of global unrecognized tax benefits at December 31,
2007 was $825. Of the $825 of unrecognized tax benefits, $443 relates to tax positions, which if recognized would
F-17
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)