Johnson and Johnson 2010 Annual Report Download - page 54

8. Income Taxes
The provision for taxes on income consists of:
(Dollars in Millions) 2010 2009 2008
Currently payable:
U.S. taxes $2,063 2,410 2,334
International taxes 1,194 1,515 1,624
Total currently payable 3,257 3,925 3,958
Deferred:
U.S. taxes (4) 187 126
International taxes 360 (623) (104)
Total deferred 356 (436) 22
Provision for taxes on income $3,613 3,489 3,980
A comparison of income tax expense at the U.S. statutory rate of
35% in 2010, 2009 and 2008, to the Company’s effective tax rate is
as follows:
(Dollars in Millions) 2010 2009 2008
U.S. $6,392 7,141 6,579
International 10,555 8,614 10,350
Earnings before taxes on income $16,947 15,755 16,929
Tax rates:
U.S. statutory rate 35.0% 35.0 35.0
Ireland and Puerto Rico operations (5.1) (5.1) (6.8)
Research and orphan drug tax credits (0.6) (0.6) (0.6)
U.S. state and local 1.0 1.8 1.6
International subsidiaries excluding Ireland (7.5) (6.7) (5.6)
U.S. manufacturing deduction (0.5) (0.4) (0.4)
In-process research and
development (IPR&D)— — 0.4
U.S. Tax international income (0.6) (1.6) (0.5)
All other (0.4) (0.3) 0.4
Effective tax rate 21.3% 22.1 23.5
The Company has subsidiaries manufacturing in Ireland under an
incentive tax rate. In addition, the Company has subsidiaries operat-
ing in Puerto Rico under various tax incentive grants. The decrease
in the 2010 tax rate was primarily due to decreases in taxable
income in higher tax jurisdictions relative to taxable income in lower
tax jurisdictions and certain U.S. tax adjustments. The decrease
in the 2009 tax rate was primarily due to increases in taxable
income in lower tax jurisdictions relative to taxable income in
higher tax jurisdictions.
Temporary differences and carry forwards for 2010 and 2009
are as follows:
2010 2009
Deferred Tax Deferred Tax
____________________ ____________________
(Dollars in Millions) Asset Liability Asset Liability
Employee related obligations $2,211 2,153
Stock based compensation 1,225 1,291
Depreciation (769) (661)
Non-deductible intangibles (2,725) (2,377)
International R&D capitalized
for tax 1,857 1,989
Reserves & liabilities 948 1,014
Income reported for
tax purposes 691 648
Net operating loss
carryforward international 738 615
Miscellaneous international 1,326 (106) 1,474 (110)
Miscellaneous U.S. 470 799
Total deferred income taxes $9,466 (3,600) 9,983 (3,148)
The difference between the net deferred tax on income per the bal-
ance sheet and the net deferred tax above is included in taxes on
income on the balance sheet. The 2009 deferred tax Miscellaneous
U.S. includes current year tax receivables. The Company has a
wholly-owned international subsidiary that has cumulative net
losses. The Company believes that it is more likely than not that this
subsidiary will realize future taxable income sufficient to utilize
these deferred tax assets.
The following table summarizes the activity related to unrecog-
nized tax benefits:
(Dollars in Millions) 2010 2009 2008
Beginning of year $2,403 1,978 1,653
Increases related to current year tax positions 465 555 545
Increases related to prior period tax positions 68 203 87
Decreases related to prior period tax positions (431) (163) (142)
Settlements(186) (87) (137)
Lapse of statute of limitations (12) (83) (28)
End of year $2,307 2,403 1,978
The Company had $2.3 billion, $2.4 billion and $2.0 billion of unrec-
ognized tax benefits as of January 2, 2011, January 3, 2010 and
December 28, 2008, respectively. All of the unrecognized tax bene-
fits of $2.3 billion at January 2, 2011, if recognized, would affect the
Company’s annual effective tax rate. The Company conducts busi-
ness and files tax returns in numerous countries and currently has
tax audits in progress with a number of tax authorities. The U.S.
Internal Revenue Service (IRS) has completed its audit for the tax
years through 2005; however, there are a limited number of issues
remaining open for prior tax years going back to 1999. In other major
jurisdictions where the Company conducts business, the years
remain open generally back to the year 2003. The Company does
not expect that the total amount of unrecognized tax benefits will
significantly change over the next twelve months. The Company is
not able to provide a reasonably reliable estimate of the timing of
any other future tax payments relating to uncertain tax positions.
52 JOHNSON & JOHNSON 2010 ANNUAL REPORT