XML 27 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Income Taxes
6 Months Ended
Jun. 30, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company accounts for its provision for income taxes in accordance with ASC 740, "Income Taxes," which requires an estimate of the annual effective income tax rate for the full year to be applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year. For the six months ended June 30, 2016 and June 30, 2015, the Company's effective income tax rate was 13.1% and 70.5%, respectively. The effective income tax rate for the six months ended June 30, 2016 was lower than the U.S. statutory rate of 35% primarily due to the tax treatment of the Hussmann gain. The gain, which is not subject to tax under the relevant local tax laws, decreased the effective tax rate by 8.5%.  In addition, the reduction was driven by earnings in non-U.S. jurisdictions, which in aggregate, have a lower effective tax rate. The effective income tax rate for the six months ended June 30, 2015 was higher than the U.S. statutory rate of 35% due to the increase in the Company's liability for unrecognized tax benefits related to the IRS agreement, partially offset by earnings in non-U.S. jurisdictions, which in aggregate, have a lower effective tax rate. The increase in the Company's liability for unrecognized tax benefits related to the IRS agreement increased the effective tax rate for the six months ended June 30, 2015 by 44.6%.
Total unrecognized tax benefits as of June 30, 2016 and December 31, 2015 were $151.1 million and $174.9 million, respectively. Although management believes its tax positions and related provisions reflected in the consolidated financial statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax authorities. These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretations of tax laws, developments in case law and closing of statute of limitations. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in Provision for income taxes.
The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Brazil, Canada, China, France, Germany, Ireland, Italy, Mexico, Spain, Switzerland, the Netherlands and the United States. In general, the examination of the Company’s material tax returns is complete for the years prior to 2003, with certain matters being resolved through appeals and litigation.