Apple 2015 Annual Report Download - page 58

As of September 26, 2015 and September 27, 2014, the significant components of the Company’s deferred tax assets and liabilities were
(in millions):
2015 2014
Deferred tax assets:
Accrued liabilities and other reserves $ 4,205 $ 3,326
Basis of capital assets and investments 2,238 898
Deferred revenue 1,941 1,787
Deferred cost sharing 667 0
Share-based compensation 575 454
Unrealized losses 564 130
Other 721 227
Total deferred tax assets, net of valuation allowance of $0 10,911 6,822
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries 26,868 21,544
Other 303 398
Total deferred tax liabilities 27,171 21,942
Net deferred tax liabilities $ (16,260) $ (15,120)
Deferred tax assets and liabilities reflect the effects of tax losses, credits and the future income tax effects of temporary differences between the
consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using
enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Uncertain Tax Positions
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be
sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the
amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than
50% likely of being realized upon ultimate settlement. The Company classifies gross interest and penalties and unrecognized tax benefits
that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the Consolidated Balance Sheets.
As of September 26, 2015, the total amount of gross unrecognized tax benefits was $6.9 billion, of which $2.5 billion, if recognized, would
affect the Company’s effective tax rate. As of September 27, 2014, the total amount of gross unrecognized tax benefits was $4.0 billion,
of which $1.4 billion, if recognized, would affect the Company’s effective tax rate.
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2015, 2014 and
2013, is as follows (in millions):
2015 2014 2013
Beginning Balance $ 4,033 $ 2,714 $ 2,062
Increases related to tax positions taken during a prior year 2,056 1,295 745
Decreases related to tax positions taken during a prior year (345) (280) (118)
Increases related to tax positions taken during the current year 1,278 882 626
Decreases related to settlements with taxing authorities (109) (574) (592)
Decreases related to expiration of statute of limitations (13) (4) (9)
Ending Balance $ 6,900 $ 4,033 $ 2,714
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of
September 26, 2015 and September 27, 2014, the total amount of gross interest and penalties accrued was $1.3 billion and $630 million,
respectively, which is classified as non-current liabilities in the Consolidated Balance Sheets. In connection with tax matters, the Company
recognized interest and penalty expense in 2015, 2014 and 2013 of $709 million, $40 million and $189 million, respectively.
Apple Inc. | 2015 Form 10-K | 56