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Taxation
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure

26.       Taxation

The components of pre tax income from continuing operations are as follows:

 

 201220112010
Year to December 31,$’M$’M$’M
 _________________________________
Republic of Ireland(74.7)(65.9)(170.0)
UK30.745.335.4
US587.4747.6745.5
Other jurisdictions368.0363.1158.4
 _________________________________
 911.41,090.1769.3
 _________________________________
    

The provision for income taxes by location of the taxing jurisdiction for the years to December 31, 2012, 2011 and 2010 consisted of the following:

 

Year to December 31,   
 201220112010
 $’M$’M$’M
 ______________________________
Current income taxes:   
Republic of Ireland- (1.8) -
US federal tax186.5193.1176.4
US state and local taxes11.09.06.6
Other 29.040.025.9
 ______________________________
Total current taxes 226.5 240.3 208.9
 ______________________________
    
Deferred taxes:   
US federal tax(53.0)22.5(6.0)
US state and local taxes(9.5)(4.6)(9.8)
UK corporation tax13.0(1.0)(0.1)
Other (10.0)(29.6)(10.3)
 ______________________________
Total deferred taxes(59.5)(12.7)(26.2)
 ______________________________
Total income taxes167.0227.6182.7
 ______________________________

The reconciliation of income from continuing operations before income taxes, noncontrolling interests and equity in earnings/(losses) of equity method investees at the statutory tax rate to the provision for income taxes is shown in the table below:

 

Year to December 31,   
  201220112010
  $’M$’M$’M
  _________________________________
Income from continuing operations before income taxes and equity in earnings of equity method investees 911.41090.1769.3
  _________________________________
Statutory tax rate(1)25.0%25.0%25.0%
     
Adjustments to derive effective rate:    
Non-deductable items:   
 US R&D credit(2.8%)(4.7%)(5.7%)
 Effect of the convertible bond0.9%0.8%1.8%
 Intra-group items(2)(17.7%)(7.7%)(12.0%)
 Recognition of foreign tax credits(7.3%) - -
 Other permanent items0.6%(0.4%)0.8%
Other items:    
Change in valuation allowance 3.8%2.1%5.1%
Impact of RESOLOR impairment5.4% - -
Difference in taxation rates (3)7.3%4.5%11.0%
Change in provisions for uncertain tax positions 1.2%(1.3%)2.2%
Prior year adjustment 0.9%0.8%(4.2%)
Change in tax rates 0.8%1.4% -
Other 0.2%0.4%(0.2%)
  _________________________________
Provision for income taxes on continuing operations 18.3%20.9%23.8%
  _________________________________

 

(1) In addition to being subject to the Irish Corporation tax rate of 25%, in 2012 the Company is also subject to income tax in other territories in which the Company operates, including: Canada (15%); France (33.3%); Germany (15%); Italy (27.5%); Luxembourg (21.0%); Malta (35%); the Netherlands (25.5%); Belgium (33.99%); Spain (30%); Sweden (26.3%); Switzerland (8.5%); United Kingdom (24.5%) and the US (35%). The rates quoted represent the headline federal income tax rates in each territory, and do not include any state taxes or equivalents or surtaxes or other taxes charged in individual territories, and do not purport to represent the effective tax rate for the Company in each territory.

(2) Intra-group items principally relate to the effect of inter-company dividends, capital receipts (either taxable or non-taxable) and other intra-territory eliminations, the pre-tax effect of which has been eliminated in arriving at the Company's consolidated income from continuing operations before income taxes, noncontrolling interests and equity in earnings/(losses) of equity method investees.

(3) Certain of our activities operate under a tax holiday which is effective through December 2021. The impact of the tax holiday is to increase the effective tax rate by 0.3% during 2012 (2011: decrease in the effective tax rate by 1.7%; 2010: increase in the effective tax rate by 0.2%).

Provisions for uncertain tax positions

 

The Company files income tax returns in the Republic of Ireland, the UK, the US (both federal and state) and various other jurisdictions (see footnote (1) to the table above for major jurisdictions). With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 1999. Tax authorities in various jurisdictions are in the process of auditing the Company's tax returns for fiscal periods from 1999; these tax audits cover a range of issues, including transfer pricing, potential restrictions on the utilization of net operating losses, potential taxation of overseas dividends and controlled foreign companies' rules.

 

While tax audits remain open, the Company also considers it reasonably possible that issues may be raised by tax authorities resulting in increases to the balance of unrecognized tax benefits, however, an estimate of such increase cannot be made.

 

The Company is required in certain tax jurisdictions to make advance deposits to tax authorities on receipt of tax assessments. These payments have been offset against the income tax liability within the balance sheet but have not reduced the provision for unrecognized tax benefits.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 201220112010
 $’M$’M$’M
 _________________________________
Balance at January 1265.5290.8254.0
Increases based on tax positions related to the current year20.518.212.4
Decreases based on tax positions taken in the current year- (2.5)(1.7)
Increases for tax positions taken in prior years0.41.418.0
Decreases for tax positions taken in prior years(3.3)(12.0)(3.2)
Decreases resulting from settlements with the taxing authorities(10.5)(25.7)(6.5)
Decreases as a result of expiration of the statute of limitations(0.3)(0.5) -
Foreign currency translation adjustments(1)6.5(4.2)17.8
 _________________________________
Balance at December 31(2)278.8265.5290.8
 _________________________________

(1) Recognized within Other Comprehensive Income

(2) The full amount of which would affect the effective rate if recognized

 

 

The Company considers it reasonably possible that certain audits currently being conducted will be concluded in the next twelve months, and as a result the total amount of unrecognized tax benefits recorded at December 31, 2012 could decrease by up to approximately $200 million. The Company believes that its reserves for uncertain tax positions are adequate to cover the resolution of these audits, and does not expect there to be a material impact, either favorable or unfavorable, on the financial results of the Company on settlement.

 

The Company recognizes interest and penalties accrued related to unrecognized tax benefits within income taxes. During the years ended December 31, 2012, 2011 and 2010, the Company recognized $5.1 million, $4.0 million and $1.0 million in interest and penalties and the Company had a liability of $119.6 million and $114.5 million for the payment of interest and penalties accrued at December 31, 2012 and 2011, respectively.

 

Deferred taxes

 

The significant components of deferred tax assets and liabilities and their balance sheet classifications, as at December 31, are as follows:

 

 December 31,December 31,
 20122011
 $’M$’M
 ________________________
Deferred tax assets:  
Deferred revenue5.56.0
Inventory & warranty provisions52.543.3
Losses carried forward (including tax credits)425.7384.8
Provisions for sales deductions and doubtful accounts144.9119.5
Restructuring0.80.7
Intangible assets36.944.0
Share-based compensation32.734.8
Other64.734.1
 ________________________
Gross deferred tax assets763.7667.2
Less: valuation allowance(268.6)(211.8)
 ________________________
 495.1455.4
Deferred tax liabilities:  
Intangible assets(702.7)(691.5)
Excess of book value over tax value of assets(36.8)(22.2)
 ________________________
Net deferred tax liabilities(244.4)(258.3)
 ________________________
   
Balance sheet classifications:  
Deferred tax assets - current229.9207.6
Deferred tax assets - non-current46.550.7
Deferred tax liabilities - non-current(520.8)(516.6)
 ________________________
 (244.4)(258.3)
 ________________________

At December 31, 2012, the Company had a valuation allowance of $268.6 million (2011: $211.8 million) to reduce its deferred tax assets to estimated realizable value. These valuation allowances related primarily to operating loss, capital loss and tax-credit carry-forwards in Ireland (2012: $73.9 million; 2011: $68.5 million); the US (2012: $37.2 million; 2011: $33.9 million); Germany (2012: $96.9 million; 2011: $80.7 million); and other foreign tax jurisdictions (2012: $60.6 million; 2011: $28.7 million).

The net increase in valuation allowances of $56.8 million is principally due to increases of losses and other temporary differences in European jurisdictions, as the Company's management considers that there is insufficient future taxable income, taxable temporary differences and feasible tax-planning strategies to overcome cumulative losses and therefore it is more likely than not that the relevant deferred tax assets will not be realized in full.

At December 31, 2012, based upon a consideration in combination of the profit history of the relevant affiliates, projections of future taxable income over the periods in which temporary differences are anticipated to reverse, any restrictions on uses of loss carry forwards and prudent and feasible tax-planning strategies, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowances. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if these factors are revised in future periods.

 

The approximate tax effect of NOLs, capital losses and tax credit carry-forwards as at December 31, are as follows:

   
 20122011
 $’M$’M
 ________________________
US federal tax NOLs26.145.3
US state tax NOLs31.419.8
UK NOLs20.724.8
Republic of Ireland NOLs72.658.0
Foreign tax jurisdictions208.8174.7
R&D and other tax credits 66.262.1
 ________________________

The approximate gross value of NOLs and capital losses at December 31, 2012 is $1,783.5 million (2011: $1,610.1 million). The tax effected NOLs, capital losses and tax credit carry-forwards shown above have the following expiration dates:

  December 31,
  2012
  $’M
  ___________
Within 1 to 2 years  0.8
Within 2 to 3 years  1.0
Within 3 to 4 years  0.8
Within 4 to 5 years  3.2
Within 5 to 6 years  2.4
After 6 years  117.9
Indefinitely  299.7

We do not provide for deferred taxes on the excess of the financial reporting over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration. At December 31, 2012, that excess totalled approximately $7.8 billion. The determination of additional deferred taxes is not practicable and is not provided.