Goldman Sachs 2012 Annual Report Download - page 196

Notes to Consolidated Financial Statements
The firm permanently reinvests eligible earnings of certain
foreign subsidiaries and, accordingly, does not accrue any
U.S. income taxes that would arise if such earnings were
repatriated. As of December 2012 and December 2011, this
policy resulted in an unrecognized net deferred tax liability
of $3.75 billion and $3.32 billion, respectively, attributable
to reinvested earnings of $21.69 billion and $20.63 billion,
respectively.
Unrecognized Tax Benefits
The firm recognizes tax positions in the financial statements
only when it is more likely than not that the position will be
sustained on examination by the relevant taxing authority
based on the technical merits of the position. A position
that meets this standard is measured at the largest amount
of benefit that will more likely than not be realized on
settlement. A liability is established for differences between
positions taken in a tax return and amounts recognized in
the financial statements.
As of December 2012 and December 2011, the accrued
liability for interest expense related to income tax matters
and income tax penalties was $374 million and
$233 million, respectively. The firm recognized $95 million,
$21 million and $28 million of interest and income tax
penalties for the years ended December 2012,
December 2011 and December 2010, respectively. It is
reasonably possible that unrecognized tax benefits could
change significantly during the twelve months subsequent
to December 2012 due to potential audit settlements,
however, at this time it is not possible to estimate any
potential change.
The table below presents the changes in the liability for
unrecognized tax benefits. This liability is included in
“Other liabilities and accrued expenses.” See Note 17 for
further information.
As of December
in millions 2012 2011 2010
Balance, beginning of year $1,887 $2,081 $1,925
Increases based on tax positions related to the current year 190 171 171
Increases based on tax positions related to prior years 336 278 162
Decreases related to tax positions of prior years (109) (41) (104)
Decreases related to settlements (35) (638) (128)
Acquisitions/(dispositions) (47) 47 56
Exchange rate fluctuations 15 (11) (1)
Balance, end of year $2,237 $1,887 $2,081
Related deferred income tax asset 1685 569 972
Net unrecognized tax benefit 2$1,552 $1,318 $1,109
1. Included in “Other assets.” See Note 12.
2. If recognized, the net tax benefit would reduce the firm’s effective income tax rate.
194 Goldman Sachs 2012 Annual Report