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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
75
In 2008, the U.S. Internal Revenue Service (“IRS”) began its examination of our fiscal years 2003 through
2006. In 2009 and 2010, we received assessments from the Canada Revenue Agency (“CRA”) for a total of
$62 million related to transfer pricing for 2003, 2004 and 2005. We paid the CRA assessments to stop the accrual of
interest. We have appealed the assessment for 2003 and have filed a notice of objection for 2004 and 2005. We
believe that we have adequately provided for any potential adverse results. In nearly all jurisdictions, the tax years
prior to 2003 are no longer subject to examination. We believe that we have made adequate provision for all
remaining income tax uncertainties.
In 2008, the IRS completed an examination of our consolidated income tax returns for 2000 to 2002 resulting in
a signed Revenue Agent Report (“RAR”), which was subsequently approved by the Joint Committee on Taxation.
The IRS and the Company agreed to certain adjustments, primarily related to transfer pricing and income tax credits.
As a result of the approved RAR, we recognized approximately $25 million of net federal and state income tax
benefits in 2008.
Significant judgments and estimates are required in determining the consolidated income tax provision.
Although our major taxing jurisdictions are the U.S. and Canada, we are subject to income taxes in numerous
foreign jurisdictions. Annually, we file a federal consolidated income tax return with the IRS and over 1,200 returns
with various state and foreign jurisdictions. Our income tax expense, deferred tax assets and liabilities reflect
management’s best assessment of estimated current and future taxes to be paid.
The reconciliation between our effective tax rate on income from continuing operations and statutory tax rate is
as follows:
Years Ended March 31,
(In millions) 2010 2009 2008
Income tax provision at federal statutory rate $ 652 $ 372 $ 510
State and local income taxes net of federal tax benefit 25 18 43
Foreign tax rate differential (144) (120) (120)
Unrecognized tax benefits and settlements 53 (21) 31
Tax credits (8) (20) (16)
Other, net 23 12 20
Income tax provision $ 601 $ 241 $ 468
At March 31, 2010, undistributed earnings of our foreign operations totaling $2.3 billion were considered to be
permanently reinvested. No deferred tax liability has been recognized for the remittance of such earnings to the U.S.
since it is our intention to utilize those earnings in the foreign operations as well as to fund certain research and
development activities for an indefinite period of time, or to repatriate such earnings when it is tax efficient to do so.
The determination of the amount of deferred taxes on these earnings is not practicable because the computation
would depend on a number of factors that cannot be known until a decision to repatriate the earnings is made.