Johnson and Johnson 2014 Annual Report Download - page 47

The increase in the 2014 effective tax rate, as compared to 2013, was attributable to the following: the divestiture of the
Ortho-Clinical Diagnostics business at an approximate 44% effective tax rate, litigation accruals at low tax rates, the mix of
earnings into higher tax jurisdictions, primarily the U.S., the accrual of an additional year of the Branded Prescription Drug
Fee, which is not tax deductible, and additional U.S. tax expense related to a planned increase in dividends from current
year foreign earnings as compared to the prior year. These increases to the 2014 effective tax rate were partially offset by
a tax benefit of $0.4 billion associated with the Conor Medsystems divestiture.
The 2013 effective tax rate was reduced by a tax benefit associated with the write-off of assets for tax purposes
associated with Scios, Inc., and the inclusion of both the 2013 and 2012 benefit from the Research and Development tax
credit and the Controlled Foreign Corporation look-through provisions, because those provisions were enacted into law in
January 2013 and were retroactive to January 1, 2012.
The 2014 effective tax rate was also reduced as the Company adjusted its unrecognized tax benefits as a result of (i) the
federal appeals court’s decision in OMJ Pharmaceuticals, Inc.’s litigation regarding credits under former Section 936 of
the Internal Revenue Code (see Note 21 to the Consolidated Financial Statements for additional information), and (ii) a
settlement of substantially all issues related to the Company’s U.S. Internal Revenue Service audit of tax years 2006-
2009. The impact of the settlement is reflected in the U.S. tax on international income and the All other line items within
the above reconciliation.
The items noted above reflect the key drivers of the rate reconciliation.
The Company has subsidiaries operating in Puerto Rico under various tax incentives.
Temporary differences and carryforwards for 2014 and 2013 were as follows:
2014
Deferred Tax
2013
Deferred Tax
(Dollars in Millions) Asset Liability Asset Liability
Employee related obligations $3,426 1,908
Stock based compensation 799 1,121
Depreciation (564) (772)
Non-deductible intangibles (6,671) (6,250)
International R&D capitalized for tax 1,433 1,656
Reserves & liabilities 1,497 1,587
Income reported for tax purposes 1,067 1,043
Net operating loss carryforward international 949 1,090
Miscellaneous international 1,128(1) (305) 1,508(1) (361)
Miscellaneous U.S. 996 927
Total deferred income taxes $11,295 (7,540) 10,840 (7,383)
(1) The $1,128 million in 2014 was net of a valuation allowance related to Belgium of $172 million. The $1,508 million in 2013 was net
of a valuation allowance related to Belgium of $187 million.
The difference between the net deferred tax on income per the balance sheet and the net deferred tax above is included in
taxes on income on the balance sheet. The Company has wholly-owned international subsidiaries that have cumulative net
losses. The Company believes that it is more likely than not that these subsidiaries will realize future taxable income
sufficient to utilize these deferred tax assets.
The following table summarizes the activity related to unrecognized tax benefits:
(Dollars in Millions) 2014 2013 2012
Beginning of year $2,729 3,054 2,699
Increases related to current year tax positions 281 643 538
Increases related to prior period tax positions 295 80 57
Decreases related to prior period tax positions (288) (574) (41)
Settlements (477) (418) (120)
Lapse of statute of limitations (75) (56) (79)
End of year $2,465 2,729 3,054
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