American Express 2013 Annual Report Download - page 96

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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) 2013 2012 2011
Current income tax expense:
U.S. federal $ 1,730 $ 982 $ 958
U.S. state and local 288 189 156
Non-U.S. 514 445 434
Total current income tax expense 2,532 1,616 1,548
Deferred income tax expense (benefit):
U.S. federal 113 359 464
U.S. state and local 439 68
Non-U.S. (120) (45) (23)
Total deferred income tax expense (3) 353 509
Total income tax expense on continuing
operations $ 2,529 $ 1,969 $ 2,057
Income tax benefit from discontinued
operations $—$ — $ (36)
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:
2013 2012 2011
U.S. statutory federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
Tax-exempt income (1.6) (1.6) (1.5)
State and local income taxes, net of
federal benefit 3.1 2.5 2.6
Non-U.S. subsidiaries earnings(a) (2.8) (5.2) (4.4)
Tax settlements(b) (1.9) (0.2) (1.9)
All other 0.3 — (0.2)
Actual tax rates(a) 32.1% 30.5% 29.6%
(a) Results for all years primarily included tax benefits associated with the
undistributed earnings of certain non-U.S. subsidiaries that were deemed to
be reinvested indefinitely. In addition, 2012 and 2011 included tax benefits of
$146 million and $77 million, which decreased the actual tax rates by 2.3
percent and 1.1 percent, respectively, related to the realization of certain
foreign tax credits.
(b) 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) 2013 2012
Deferred tax assets:
Reserves not yet deducted for tax purposes $ 3,813 $ 3,828
Employee compensation and benefits 721 761
Other 546 537
Gross deferred tax assets 5,080 5,126
Valuation allowance (121) (162)
Deferred tax assets after valuation allowance 4,959 4,964
Deferred tax liabilities:
Intangibles and fixed assets 1,325 1,346
Deferred revenue 453 403
Deferred interest 363 378
Asset Securitization 130 73
Other 245 306
Gross deferred tax liabilities 2,516 2,506
Net deferred tax assets $ 2,443 $ 2,458
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, 2013 and 2012 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 $9.6 billion as of December 31, 2013, are
intended to be permanently reinvested outside the U.S. The Company
does not provide for federal income taxes on foreign earnings
intended to be permanently reinvested outside the U.S. Accordingly,
federal taxes, which would have aggregated approximately $3.0 billion
as of December 31, 2013, have not been provided on those earnings.
Net income taxes paid by the Company (including amounts related
to discontinued operations) during 2013, 2012 and 2011, were
approximately $2.0 billion, $1.9 billion and $0.7 billion, respectively.
These amounts include estimated tax payments and cash settlements
relating to prior tax years.
The Company is subject to the income tax laws of the U.S., 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 than not that the tax
position will be sustained upon examination. The amount of benefit
recognized for financial reporting purposes is based on management’s
best judgment of the largest amount of benefit that is more likely than
not to be realized on ultimate settlement with the taxing authority
given the facts, circumstances and information available at the
reporting date. The Company adjusts the level of unrecognized tax
benefits when there is new information available to assess the
likelihood of the outcome.
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