Morgan Stanley 2014 Annual Report Download - page 289

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) For 2014 Non-U.S. other jurisdictions included significant total tax provisions of $44 million, $38 million, and $38 million from Brazil,
India, and Mexico, respectively. For 2013 Non-U.S. other jurisdictions included significant total tax provisions (benefits) of $59 million,
$54 million, and $(156) million from Brazil, India, and Luxembourg, respectively. For 2012 Non-U.S. other jurisdictions included
significant total tax provisions (benefits) of $43 million, $36 million, $36 million, $33 million, $32 million, and $(31) million from India,
Brazil, Spain, Canada, Singapore, and Netherlands, respectively.
The following table reconciles the provision for (benefit from) income taxes to the U.S. federal statutory income
tax rate:
2014 2013 2012(1)
U.S. federal statutory income tax rate ................................... 35.0% 35.0% 35.0%
U.S. state and local income taxes, net of U.S. federal income tax benefits ....... 6.5 2.3 7.5
Domestic tax credits ................................................. (5.0) (3.2) (29.0)
Tax exempt income .................................................. (3.5) (2.5) (26.0)
Non-U.S. earnings:
Foreign Tax Rate Differential ...................................... (22.5) (6.0) (12.2)
Change in Reinvestment Assertion .................................. 1.4 (1.4) 4.2
Change in Foreign Tax Rates ...................................... — 0.1 (0.2)
Wealth Management Legal Entity Restructuring ........................... (38.7) — —
Non-deductible legal expenses ......................................... 25.5 0.9 0.7
Other ............................................................. (1.2) (5.4) (7.0)
Effective income tax rate ............................................. (2.5)% 19.8 % (27.0)%
(1) 2012 percentages are reflective of the lower level of income from continuing operations before income taxes on a comparative basis due
to the change in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in its credit
spreads and other credit factors.
The Company’s effective tax rate from continuing operations for 2014 included an aggregate discrete net tax
benefit of $2,226 million. This discrete net tax benefit consisted of: $1,380 million primarily due to the release of
a deferred tax liability as a result of an internal Wealth Management restructuring to simplify the Company’s
legal entity organization, $609 million principally associated with remeasurement of reserves and related interest
due to new information regarding the status of a multi-year tax authority examination, and $237 million primarily
associated with the repatriation of non-U.S. earnings at a cost lower than originally estimated. Excluding the
aggregate discrete net tax benefit noted above, the effective tax rate from continuing operations in 2014 would
have been 59.5%, which includes the impact of the non-deductible expenses related to litigation and regulatory
matters.
On October 31, 2014, the Company completed an internal restructuring to simplify its legal entity organization
that included a change in tax status of Morgan Stanley Smith Barney Holdings LLC from a partnership to a
corporation. As a result of this change in tax status, the Company released a deferred tax liability which was
previously established in 2009 as part of the acquisition of Smith Barney through a charge to Additional paid-in
capital. This discrete net tax benefit of $1,390 million was included in Provision for (benefit from) income taxes
in the Company’s consolidated statements of income for 2014, and attributable to its Wealth Management
business segment.
The Company’s effective tax rate from continuing operations for 2013 included an aggregate discrete net tax
benefit of $407 million. This included discrete tax benefits of: $161 million related to the remeasurement of
reserves and related interest associated with new information regarding the status of certain tax authority
examinations; $92 million related to the establishment of a previously unrecognized deferred tax asset from a
legal entity reorganization; $73 million that is attributable to tax planning strategies to optimize foreign tax credit
utilization as a result of the anticipated repatriation of earnings from certain non-U.S. subsidiaries; and
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