GE 2014 Annual Report Download - page 203

GE 2014 FORM 10-K 183
FINANCIAL STATEMENTS INCOME TAXES
Our businesses are subject to regulation under a wide variety of U.S. federal, state and foreign tax laws, regulations and
policies. Changes to these laws or regulations may affect our tax liability, return on investments and business operations. For
example, GE’s effective tax rate is reduced because active business income earned and indefinitely reinvested outside the
United States is taxed at less than the U.S. rate. A significant portion of this reduction depends upon a provision of U.S. tax
law that defers the imposition of U.S. tax on certain active financial services income until that income is repatriated to the
United States as a dividend. This provision is consistent with international tax norms and permits U.S. financial services
companies to compete more effectively with non-U.S. financial institutions in global markets. This provision, which had expired
at the end of 2013, was reinstated in December 2014 retroactively for one year through the end of 2014. The provision also
had been scheduled to expire and had been extended by Congress on seven previous occasions, but there can be no
assurance that it will continue to be extended. In the event the provision is not extended after 2014, the current U.S. tax
imposed on active financial services income earned outside the United States would increase, making it more difficult for U.S.
financial services companies to compete in global markets. If this provision is not extended, we expect our effective tax rate to
increase significantly after 2015.
RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE
Consolidated GE GECC
2014 2013 2012 2014 2013 2012 2014 2013 2012
U.S. federal statutory income tax rate 35.0 % 35.0 % 35.0 % 35.0 % 35.0 % 35.0 % 35.0 % 35.0 % 35.0
%
Increase (reduction) in rate resulting from
inclusion of after-tax earnings of GECC in
before-tax earnings of GE - - - (15.2) (16.9) (15.3) - - -
Tax on global activities including exports(a) (18.4) (24.7) (12.5) (7.9) (4.1) (4.3) (24.1) (45.0) (18.4)
U.S. business credits(b) (2.6) (3.6) (2.6) (0.6) (1.5) (0.7) (4.6) (4.6) (4.3)
Business Property disposition - - (1.9) - - - - - (4.2)
All other – net (3.7) (2.5) (3.4) (1.6) (2.7) (2.7) (4.5) 1.0 (1.5)
(24.7) (30.8) (20.4) (25.3) (25.2) (23.0) (33.2) (48.6) (28.4)
Actual income tax rate 10.3 % 4.2 % 14.6 % 9.7 % 9.8 % 12.0 % 1.8 % (13.6)% 6.6
%
(a) Included (1.7)% and (3.8)% in consolidated and GECC, respectively, related to the sale of GEMB-Nordic in 2014 and (6.0)% and (13.3)% in consolidated and GECC,
respectively, related to the sale of 68.5% of our Swiss consumer finance bank, Cembra Money Bank AG (Cembra), through an initial public offering in 2013.
(b) U.S. general business credits, primarily the credit for manufacture of energy efficient appliances, the credit for energy produced from renewable sources, the advanced
energy project credit, the low-income housing credit and the credit for research performed in the U.S.
UNRECOGNIZED TAX POSITIONS
Annually, we file over 5,500 income tax returns in over 250 global taxing jurisdictions. We are under examination or engaged
in tax litigation in many of these jurisdictions. During 2013, the Internal Revenue Service (IRS) completed the audit of our
consolidated U.S. income tax returns for 2008-2009, except for certain issues that remain under examination. At December
31, 2014, the IRS was auditing our consolidated U.S. income tax returns for 2010-2011. In addition, certain other U.S. tax
deficiency issues and refund claims for previous years were unresolved. The IRS has disallowed the tax loss on our 2003
disposition of ERC Life Reinsurance Corporation. We have contested the disallowance of this loss. It is reasonably possible
that the unresolved items could be resolved during the next 12 months, which could result in a decrease in our balance of
“unrecognized tax benefits” – that is, the aggregate tax effect of differences between tax return positions and the benefits
recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved
issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we
have made adequate provision for all income tax uncertainties. Resolution of audit matters, including the IRS audit of our
consolidated U.S. income tax returns for 2008-2009, reduced our 2013 consolidated income tax rate by 2.8 percentage points.