McKesson 2016 Annual Report Download - page 94

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
with the Internal Revenue Service (“IRS”) to settle all outstanding issues relating to years 2003 through 2006.
Discrete tax expense for 2014 primarily related to a $122 million charge regarding an unfavorable decision from
the Tax Court of Canada with respect to transfer pricing issues.
Our reported income tax rates were 27.9%, 30.7%, and 34.9% in 2016, 2015 and 2014. The fluctuations in
our reported income tax rates are primarily due to changes within our business mix, including varying
proportions of income attributable to foreign countries that have lower income tax rates and discrete items.
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) 2016 2015 2014
Income tax expense at federal statutory rate $1,137 $ 930 $ 760
State income taxes net of federal tax benefit 92 81 57
Foreign income taxed at various rates (295) (247) (177)
Canadian litigation (8) — 122
Controlled substance distribution reserve — 58 —
Unrecognized tax benefits and settlements (6) 10 (6)
Tax credits (18) (10) (6)
Other, net 6 (7) 7
Income tax expense $ 908 $ 815 $ 757
At March 31, 2016, undistributed earnings of our foreign operations totaling $5,831 million were considered
to be permanently reinvested. No deferred tax liability has been recognized on the basis difference created by
such earnings 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. 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.
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