Coca Cola 2008 Annual Report Download - page 129

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 2008, 2007 and 2006, 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, 2008, 2007 or 2006.
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, 2008, the gross amount of unrecognized tax benefits was
approximately $369 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 $174 million, exclusive of any benefits related
to interest and penalties. The remaining approximately $195 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.
In early July 2008, agreements were reached between the U.S. government and a foreign government
concerning the allocation of income between the two tax jurisdictions. Pursuant to these agreements, we made
cash payments during the third quarter of 2008 that constituted payments of tax and interest. These payments
were partially offset by tax credits taken in the third quarter and fourth quarter of 2008, and tax refunds and
interest on refunds to be received in 2009. These benefits had been recorded as deferred tax assets in prior
periods. As a result of these agreements, these deferred tax assets have been reclassified to income tax and
interest receivables. The settlements did not have a material impact on the Company’s consolidated statement of
income for the year ended December 31, 2008. The impact of these agreements, and other 2008 activity, is
reflected in the balances of our unrecognized tax benefits and deferred tax assets as of December 31, 2008,
which is further described below.
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