Coca Cola 2007 Annual Report Download - page 116

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: INCOME TAXES (Continued)
Our effective tax rate reflects the tax benefits from having significant operations outside the United States that are
taxed at rates lower than the statutory U.S. rate of 35 percent. During 2007, the Company had several subsidiaries that
benefited from various tax incentive grants. The terms of these grants range from 2010 to 2031. The Company expects
each of the grants to be renewed indefinitely. The grants did not have a material effect on the results of operations for
the years ended December 31, 2007, 2006 or 2005.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and
foreign jurisdictions. U.S. tax authorities have completed their federal income tax examinations for all years prior to 2005.
With respect to state and local jurisdictions and countries outside the United States, with limited exceptions, the
Company and its subsidiaries are no longer subject to income tax audits for years before 2001. Although the outcome
of tax audits is always uncertain, the Company believes that adequate amounts of tax, including interest and penalties,
have been provided for any adjustments that are expected to result from those years.
The Company adopted the provisions of Interpretation No. 48, effective January 1, 2007. As a result of the
implementation of Interpretation No. 48, the Company recorded an approximate $65 million increase in liabilities for
unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007, balance of reinvested
earnings. As of December 31, 2007, the gross amount of unrecognized tax benefits was approximately $643 million. If
the Company were to prevail on all uncertain tax positions, the net effect would be a benefit to the Company’s effective
tax rate of approximately $147 million, exclusive of any benefits related to interest and penalties. The remaining
approximately $496 million, which was recorded as a deferred tax asset, primarily represents tax benefits that would be
received in different tax jurisdictions in the event that the Company did not prevail on all uncertain tax positions. A
reconciliation of the changes in the gross balance of unrecognized tax benefits amounts during 2007 follows:
Year Ended December 31, 2007
Beginning balance of unrecognized tax benefit $ 511
Increases related to prior period tax positions 22
Increases due to current period tax positions 51
Decreases related to settlements with taxing authorities (4)
Reductions as a result of a lapse of the applicable statute of limitations (1)
Increases/(decreases) from effects of exchange rates 64
Ending balance of unrecognized tax benefits $ 643
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax
expense. As of December 31, 2007, the Company had approximately $272 million in interest and penalties related to
unrecognized tax benefits accrued, of which approximately $82 million was recognized through tax expense in 2007. If
the Company were to prevail on all uncertain tax positions, the reversal of this accrual would also be a benefit to the
Company’s effective tax rate.
It is reasonably possible that the amount of unrecognized benefit with respect to certain of our unrecognized tax
positions will significantly change within the next twelve months. These changes may be the result of settlement of
ongoing audits, competent authority proceedings related to transfer pricing, or final settlements in transfer pricing
matters that are the subject of litigation. At this time, an estimate of the range of the reasonably possible outcomes
cannot be made.
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