Morgan Stanley 2014 Annual Report Download - page 290

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$81 million due to the retroactive effective date of the American Taxpayer Relief Act of 2012 (the “Relief Act”).
The Relief Act that was enacted on January 2, 2013, among other things, extended with retroactive effect to
January 1, 2012 a provision of U.S. tax law that defers the imposition of tax on certain active financial services
income of certain foreign subsidiaries earned outside the U.S. until such income is repatriated to the U.S. as a
dividend. Excluding the aggregate discrete net tax benefit noted above, the effective tax rate from continuing
operations in 2013 would have been 28.7%.
The Company’s effective tax rate from continuing operations for 2012 included an aggregate net tax benefit of
$142 million. This included a discrete tax benefit of $299 million related to the remeasurement of reserves and
related interest associated with either the expiration of the applicable statute of limitations or new information
regarding the status of certain IRS examinations and an aggregate out-of-period net tax provision of $157
million, to adjust the overstatement of deferred tax assets associated with partnership investments, principally in
the Company’s Investment Management business segment and repatriated earnings of foreign subsidiaries
recorded in prior years. The Company has evaluated the effects of the understatement of the income tax provision
both qualitatively and quantitatively and concluded that it did not have a material impact on any prior annual or
quarterly consolidated financial statements. Excluding the aggregate net tax benefit noted above, the effective tax
rate from continuing operations in 2012 would have been a benefit of 3.2%.
The Company had $7,364 million and $6,675 million of cumulative earnings at December 31, 2014 and December 31,
2013, respectively, attributable to foreign subsidiaries for which no U.S. provision has been recorded for income tax
that could occur upon repatriation. Accordingly, $841 million and $736 million of deferred tax liabilities were not
recorded with respect to these earnings at December 31, 2014 and December 31, 2013, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when
such differences are expected to reverse. Significant components of the Company’s deferred tax assets and
liabilities at December 31, 2014 and December 31, 2013 were as follows:
December 31,
2014
December 31,
2013
(dollars in millions)
Gross deferred tax assets:
Tax credits and loss carryforwards .................................... $3,833 $5,130
Employee compensation and benefit plans .............................. 3,715 2,417
Valuation and liability allowances ..................................... 661 1,122
Valuation of inventory, investments and receivables ...................... 586 418
Total deferred tax assets ......................................... 8,795 9,087
Deferred tax assets valuation allowance(1) .......................... 34 38
Deferred tax assets after valuation allowance ........................ $8,761 $9,049
Gross deferred tax liabilities:
Non-U.S. operations ................................................ $ 925 $1,293
Fixed assets ...................................................... 565 275
Other ........................................................... 65 253
Total deferred tax liabilities ...................................... $1,555 $1,821
Net deferred tax assets .......................................... $7,206 $7,228
(1) The valuation allowance reduces the benefit of certain separate Company federal net operating loss and state capital loss carryforwards to
the amount that will more likely than not be realized. During 2014, the valuation allowance was decreased by $4 million related to the
ability to utilize certain state capital losses.
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