Johnson and Johnson 2015 Annual Report Download - page 61

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.
Temporary differences and carryforwards for 2015 and 2014 were as follows:
2015
Deferred Tax
2014
Deferred Tax
(Dollars in Millions) Asset Liability Asset Liability
Employee related obligations $2,863 3,426
Stock based compensation 790 799
Depreciation (247) (564)
Non-deductible intangibles (6,663) (6,671)
International R&D capitalized for tax 1,318 1,433
Reserves & liabilities 1,801 1,497
Income reported for tax purposes 960 1,067
Net operating loss carryforward international 997 949
Miscellaneous international 922(1) (249) 1,128(1) (305)
Miscellaneous U.S. 436 996
Total deferred income taxes $10,087 (7,159) 11,295 (7,540)
(1) The $922 million in 2015 was net of a valuation allowance related to Belgium of $196 million . The $1,128 million in 2014 was net of
a valuation allowance related to Belgium of $172 million.
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) 2015 2014 2013
Beginning of year $2,465 2,729 3,054
Increases related to current year tax positions 570 281 643
Increases related to prior period tax positions 182 295 80
Decreases related to prior period tax positions (79) (288) (574)
Settlements (4) (477) (418)
Lapse of statute of limitations (54) (75) (56)
End of year $3,080 2,465 2,729
The unrecognized tax benefits of $3.1 billion at January 3, 2016, if recognized, would affect the Company’s annual
effective tax rate. The Company conducts business and files tax returns in numerous countries and currently has tax audits
in progress with a number of tax authorities. The IRS has completed its audit for the tax years through 2009 and is
currently auditing the tax years 2010-2012. In other major jurisdictions where the Company conducts business, the years
remain open generally back to the year 2004. The Company believes it is possible that audits may be completed by tax
authorities in some jurisdictions over the next twelve months. However, 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.
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