Coca Cola 2015 Annual Report Download - page 125

Our effective tax rate reflects the tax benefits of having significant operations outside the United States, which are generally taxed at rates lower than the U.S.
statutory rate of 35.0 percent. As a result of employment actions and capital investments made by the Company, certain tax jurisdictions provide income tax
incentive grants, including Brazil, Costa Rica, Singapore and Swaziland. The terms of these grants expire from 2016 to 2023. We anticipate that we will be
able to extend or renew the grants in these locations. Tax incentive grants favorably impacted our income tax expense by $223 million, $265 million and
$279 million for the years ended December 31, 2015, 2014 and 2013, respectively. In addition, our effective tax rate reflects the benefits of having
significant earnings generated in investments accounted for under the equity method of accounting, which are generally taxed at rates lower than the U.S.
statutory rate.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. U.S. tax authorities
have completed their federal income tax examinations for all years prior to 2007. 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 2006. For U.S. federal and
state tax purposes, the net operating losses and tax credit carryovers acquired in connection with our acquisition of Old CCE's North America business that
were generated between the years of 1990 through 2010 are subject to adjustments until the year in which they are actually utilized is no longer subject to
examination. 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.
On September 17, 2015, the Company received a Notice from the IRS for the tax years 2007 through 2009, after a five-year audit. Refer to Note 11.
As of December 31, 2015, the gross amount of unrecognized tax benefits was $168 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 $148 million, exclusive of any benefits related to interest and penalties. The remaining
$20 million, which was recorded as a deferred tax asset, primarily represents tax benefits that would be received in different tax jurisdictions in the event the
Company did not prevail on all uncertain tax positions.
A reconciliation of the changes in the gross amount of unrecognized tax benefits is as follows (in millions):
Year Ended December 31, 
2014
2013
Beginning balance of unrecognized tax benefits  
$ 230
$ 302
Increase related to prior period tax positions 
13
1
Decrease related to prior period tax positions 
(2)
(7)
Increase related to current period tax positions 
11
8
Decrease related to settlements with taxing authorities 
(5)
(4)
Decrease due to lapse of the applicable statute of limitations 
(32)
(59)
Increase (decrease) due to effect of foreign currency exchange rate changes 
(4)
(11)
Ending balance of unrecognized tax benefits  
$ 211
$ 230
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company had $111 million, $113
million and $105 million in interest and penalties related to unrecognized tax benefits accrued as of December 31, 2015, 2014 and 2013, respectively. Of
these amounts, $8 million of expense and $8 million of benefit were recognized through income tax expense in 2014 and 2013, respectively. For the year
ended December 31, 2015, an insignificant amount of interest and penalties were recognized through income tax expense. 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 expected that the amount of unrecognized tax benefits will change in the next 12 months; however, we do not expect the change to have a significant
impact on our consolidated statements of income or consolidated balance sheets. These changes may be the result of settlements of ongoing audits, statute of
limitations expiring 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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