Johnson Controls 2013 Annual Report Download - page 29

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29
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Judgment is required in determining its
worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s
business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly
under audit by tax authorities.
In the third quarter of fiscal 2013, tax audit resolutions resulted in a net $79 million benefit to income tax expense.
As a result of foreign law changes during the second quarter of fiscal 2013, the Company increased its total reserve for uncertain
tax positions, resulting in income tax expense of $17 million.
As a result of certain events related to prior tax planning initiatives, during the third quarter of fiscal 2012, the Company reduced
the reserve for uncertain tax positions by $22 million, including $13 million of interest and penalties, resulting in a benefit to
income tax expense.
The Company’s federal income tax returns and certain non-U.S. income tax returns for various fiscal years remain under various
stages of audit by the Internal Revenue Service and respective non-U.S. tax authorities. Although the outcome of tax audits is
always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual
tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. At September
30, 2013, the Company had recorded a liability for its best estimate of the probable loss on certain of its tax positions, the majority
of which is included in other noncurrent liabilities in the consolidated statements of financial position. Nonetheless, the amounts
ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued
for each year.
The Company expects that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next
twelve months, the net impact of which is not expected to be significant to the Company's consolidated financial statements.
Other Tax Matters
In the fourth quarter of fiscal 2013, the Company disposed of the HomeLink® product line and certain businesses, which resulted
in $59 million of incremental tax expense above the statutory rate on the net gain.
In the fourth quarter of fiscal 2013, the Company provided income tax expense on the foreign undistributed earnings of the non-
U.S. subsidiaries primarily related to the Electronics business, which resulted in $210 million of incremental tax expense.
During fiscal 2013, the Company incurred significant charges for restructuring and impairment costs. A substantial portion of these
charges cannot be benefited for tax purposes due to our current tax position in these jurisdictions and the underlying tax basis in
the impaired assets, thus causing a $235 million incremental tax expense.
In the third quarter of fiscal 2013, the Company resolved certain Mexican tax issues, which resulted in a $61 million benefit to
income tax expense.
Impacts of Tax Legislation and Change in Statutory Tax Rates
As a result of foreign law changes during the second quarter of fiscal 2013, the Company increased its total reserve for uncertain
tax positions, resulting in income tax expense of $17 million.
The "look-through rule," under subpart F of the U.S. Internal Revenue Code, expired for the Company on September 30, 2012.
The "look-through rule" had provided an exception to the U.S. taxation of certain income generated by foreign subsidiaries. The
rule was extended in January 2013 retroactive to the beginning of the Company's 2013 fiscal year.
During the fiscal year ended September 30, 2012, tax legislation was adopted in Japan which reduced its statutory income tax rate
by 5%. Also, tax legislation was adopted in various jurisdictions to limit the annual utilization of tax losses that are carried forward.
None of these changes had a material impact on the Company’s consolidated financial condition, results of operations or cash
flows.