Safeway 2012 Annual Report Download - page 77

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
65
At year-end 2012, no deferred tax liability has been recognized for the $1.3 billion of unremitted foreign
earnings because the Company intends to utilize those earnings in the foreign operations for an indefinite
period of time. If Safeway did not consider these earnings to be indefinitely reinvested, the deferred tax
liability would have been in the range of $125 million to $160 million at year-end 2012.
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in millions):
2012 2011 2010
Balance at beginning of year $ 161.3 $ 159.9 $ 151.0
Additions based on tax positions related to the current year 2.7 17.8 4.3
Additions for tax positions of prior years 2.2 0.5 10.6
Reductions for tax positions of prior years (46.9) (3.5) (4.7)
Foreign currency translation 0.1 (0.1) 0.4
Expiration of statute of limitations ——(0.8)
Settlements —(13.3) (0.9)
Balance at end of year $ 119.4 $ 161.3 $ 159.9
As of December 29, 2012, December 31, 2011 and January 1, 2011, the balance of unrecognized tax benefits
included tax positions of $42.9 million (net of tax), $43.1 million (net of tax) and $43.7 million (net of tax),
respectively, that would reduce the Company’s effective income tax rate if recognized in future periods.
Income tax expense in 2012, 2011 and 2010 included benefits of $6.8 million (net of tax), $0.4 million (net
of tax) and $0.5 million (net of tax), respectively, related to interest and penalties. As of December 29, 2012
and December 31, 2011, the Company’s accrual for net interest and penalties was a receivable of $3.3
million and a liability of $3.0 million, respectively.
The Company and its domestic subsidiaries file income tax returns with federal, state and local tax authorities
within the United States. The Company’s foreign affiliates file income tax returns in various foreign
jurisdictions, the most significant of which are Canada and certain of its provinces. With limited exceptions,
including certain income tax refund claims, the Company is no longer subject to federal income tax
examinations for fiscal years before 2006, and is no longer subject to state and local income tax examinations
for fiscal years before 2003. With limited exceptions, including proposed deficiencies which the Company
is protesting, Safeway’s Canadian affiliates are no longer subject to examination by Canada and certain of
its provinces for fiscal years before 2006.
In 2007, the Company applied for a bilateral Advance Pricing Agreement between the Canada Revenue
Agency and the Internal Revenue Service for the years 2007 through 2011. The Agreement would determine
an arm's length royalty charge that the Company's Canadian subsidiary must pay for use of intellectual
property and know-how developed by the Company. The Company submitted the case to binding arbitration
in 2012 and expects the results of that arbitration to be known in 2013.
The Company previously had such a royalty agreement approved for the years 2000 through 2006. The
Company has paid and accrued taxes in each country based on best estimates of potential outcomes of the
Advance Pricing Agreement and binding arbitration process. The result of the process is likely to be an
adjustment to royalties paid and increases in tax in one country and decreases in tax in the other country.
In addition, the determination of the royalty charge could result in an increase or decrease in taxes provided
on the repatriation of foreign earnings.