American Express 2010 Annual Report Download - page 103

NOTE 17
INCOME TAXES
The components of income tax expense for the years ended
December 31 included in the Consolidated Statements of
Income were as follows:
(Millions) 2010 2009 2008
Current income tax expense (benefit):
U.S. federal $ 532 $ 661 $ 735
U.S. state and local 110 40 (28)
Non-U.S. 508 295 352
Total current income tax expense 1,150 996 1,059
Deferred income tax expense (benefit):
U.S. federal 782 (231) (150)
U.S. state and local 78 24 (84)
Non-U.S. (103) (85) (115)
Total deferred income tax expense
(benefit) 757 (292) (349)
Total income tax expense on continuing
operations $ 1,907 $ 704 $ 710
Income tax expense from discontinued
operations $—$4$12
A reconciliation of the U.S. federal statutory rate of 35 percent to
the Company’s actual income tax rate for the years ended
December 31 on continuing operations was as follows:
2010 2009 2008
Combined tax at U.S. statutory federal
income tax rate 35.0% 35.0% 35.0%
Increase (Decrease) in taxes resulting from:
Tax-exempt income (1.9) (4.6) (3.9)
State and local income taxes, net of
federal benefit 2.7 2.7 1.6
Non-U.S. subsidiaries earnings (3.1) (6.8) (8.4)
Tax settlements
(a)
(1.3) (1.4) (5.5)
All other 0.6 (0.1) 1.0
Actual tax rates 32.0% 24.8% 19.8%
(a) Relates to the resolution of tax matters in various jurisdictions.
The Company records a deferred income tax (benefit) provision
when there are differences between assets and liabilities
measured for financial reporting and for income tax return
purposes. These temporary differences result in taxable or
deductible amounts in future years and are measured using
the tax rates and laws that will be in effect when such
differences are expected to reverse.
The significant components of deferred tax assets and liabilities
as of December 31 are reflected in the following table:
(Millions) 2010 2009
Deferred tax assets:
Reserves not yet deducted for tax purposes $ 3,789 $ 3,495
Employee compensation and benefits 741 717
Other 290 114
Gross deferred tax assets 4,820 4,326
Valuation allowance (104) (60)
Deferred tax assets after valuation allowance 4,716 4,266
Deferred tax liabilities:
Intangibles and fixed assets 834 744
Deferred revenue 36 49
Asset securitizations 43 70
Net unrealized securities gains 19 291
Other 387 133
Gross deferred tax liabilities 1,319 1,287
Net deferred tax assets $ 3,397 $ 2,979
A valuation allowance is established when management
determines that it is more likely than not that all or some
portion of the benefit of the deferred tax assets will not be
realized. The valuation allowances as of December 31, 2010
and 2009 are associated with net operating losses and other
deferred tax assets in certain non-U.S. operations of
the Company.
Accumulated earnings of certain non-U.S. subsidiaries, which
totaled approximately $7.4 billion as of December 31, 2010, are
intended to be permanently reinvested outside the United States.
The Company does not provide for federal income taxes on
foreign earnings intended to be permanently reinvested
outside the United States. Accordingly, federal taxes, which
would have aggregated approximately $1.9 billion as of
December 31, 2010, have not been provided on those earnings.
Net income taxes paid by the Company (including amounts
related to discontinued operations) during 2010, 2009 and 2008,
were approximately $0.8 billion, $0.4 billion and $2.0 billion,
respectively. These amounts include estimated tax payments and
cash settlements relating to prior tax years.
The Company, its wholly-owned U.S. subsidiaries, and certain
non-U.S. subsidiaries file a consolidated federal income tax
return. The Company is subject to the income tax laws of the
United States, its states and municipalities and those of the
foreign jurisdictions in which the Company operates. These
tax laws are complex, and the manner in which they apply to
the taxpayer’s facts is sometimes open to interpretation. Given
these inherent complexities, the Company must make judgments
in assessing the likelihood that a tax position will be sustained
upon examination by the taxing authorities based on the
technical merits of the tax position. A tax position is
recognized only when, based on management’s judgment
regarding the application of income tax laws, it is more likely
101
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS