3M 2004 Annual Report Download - page 85

59
On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Jobs Act”). The Jobs Act
provides a deduction for income from qualified domestic production activities, which will be phased in from 2005
through 2010. In return, the Act also provides for a two-year phase-out of the existing extra-territorial income
exclusion (ETI) for foreign sales that was viewed to be inconsistent with international trade protocols by the
European Union. Uncertainty remains as to how to interpret numerous provisions in the Jobs Act. At this time, the
Company does not expect the net effect of the phase-out of the ETI and the phase-in of this new deduction to
materially impact the effective tax rate for 2005 and 2006.
Under the guidance in FASB Staff Position No. FAS 109-1, Application of SFAS No. 109, “Accounting for Income
Taxes,” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of
2004, the deduction will be treated as a “special deduction” as described in SFAS No. 109. As such, the special
deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of
this deduction will be reported in the period in which the deduction is claimed on the Company’s tax return.
In addition to the deduction for income from qualified domestic production activities, the Jobs Act also creates a
temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85
percent dividends received deduction for certain dividends from controlled foreign corporations. The deduction is
subject to a number of limitations and uncertainty remains as to how to interpret certain provisions in the Jobs Act.
As such, the Company is not yet in a position to decide whether, and to what extent, it might repatriate foreign
earnings that have not yet been remitted to the U.S. Based on the Company’s analysis to date, however, it is
possible that the Company will repatriate an amount totaling between $800 million and $950 million, with the
respective tax liability ranging from $40 million to $50 million. The Company expects to be in a position to finalize
its assessment after issuance of further regulatory guidance and passage of statutory technical corrections.
As of December 31, 2004, approximately $5.6 billion of unremitted earnings attributable to international companies
was considered to be indefinitely invested. The Company’s intention is to reinvest the indefinitely invested earnings
permanently or to repatriate the earnings when it is tax effective to do so. It is not practicable to determine the amount
of incremental taxes that might arise were these earnings to be remitted. However, the Company believes that U.S.
foreign tax credits would largely eliminate any U.S. taxes and offset any foreign withholding taxes due on remittance.
Provisions are made for estimated U.S. and foreign incomes taxes, less available tax credits and deductions, which
may be incurred on the remittance of the Company’s share of subsidiaries’ undistributed earnings not deemed to be
permanently reinvested. The Company is in the process of evaluating its position with respect to the indefinite
investment of foreign earnings to take into account the possible election of the repatriation provisions contained in the
Jobs Act. Therefore, the $5.6 billion of unremitted earnings noted above includes earnings that may be remitted as
part of the Jobs Act. The status of the Company’s evaluation of these provisions is described above.