Income Taxes
The following table summarizes income (loss) before income taxes and equity income and gain on investments (dollars in millions):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
U.S. income (loss) | $ | 4,880 |
| | $ | (19,063 | ) | | $ | 2,883 |
|
Non-U.S. income (loss) | 768 |
| | (11,194 | ) | | 3,102 |
|
Income (loss) before income taxes and equity income and gain on investments | $ | 5,648 |
| | $ | (30,257 | ) | | $ | 5,985 |
|
Income Tax Expense (Benefit)
The following table summarizes Income tax expense (benefit) (dollars in millions):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Current income tax expense (benefit) | | | | | |
U.S. federal | $ | (34 | ) | | $ | 6 |
| | $ | (134 | ) |
U.S. state and local | 88 |
| | 78 |
| | 58 |
|
Non-U.S. | 512 |
| | 646 |
| | 275 |
|
Total current income tax expense | 566 |
| | 730 |
| | 199 |
|
Deferred income tax expense (benefit) | | | | | |
U.S. federal | 1,049 |
| | (28,965 | ) | | 8 |
|
U.S. state and local | 137 |
| | (3,415 | ) | | (28 | ) |
Non-U.S. | 375 |
| | (3,181 | ) | | (289 | ) |
Total deferred income tax expense (benefit) | 1,561 |
| | (35,561 | ) | | (309 | ) |
Total income tax expense (benefit) | $ | 2,127 |
| | $ | (34,831 | ) | | $ | (110 | ) |
Provisions are made for estimated U.S. and non-U.S. income taxes, less available tax credits and deductions, which may be incurred on the remittance of our basis differences in investments in foreign subsidiaries and corporate joint ventures not deemed to be indefinitely reinvested. Taxes have not been provided on basis differences in investments primarily as a result of earnings in foreign subsidiaries and corporate joint ventures which are deemed indefinitely reinvested of $2.6 billion and $1.4 billion at December 31, 2013 and 2012. Additional basis differences in investments in nonconsolidated China JVs exist of $4.1 billion at December 31, 2013 and 2012 primarily related to fresh-start reporting. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.
The following table summarizes a reconciliation of Income tax expense (benefit) compared with the amounts at the U.S. federal statutory rate (dollars in millions):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Income tax expense (benefit) at U.S. federal statutory income tax rate | $ | 1,977 |
| | $ | (10,590 | ) | | $ | 2,094 |
|
State and local tax expense | 145 |
| | 254 |
| | 215 |
|
Non-U.S. income taxed at other than 35% | (168 | ) | | 908 |
| | (172 | ) |
Foreign tax credit election change | — |
| | (1,075 | ) | | — |
|
U.S. tax on Non-U.S. income | 543 |
| | 713 |
| | (122 | ) |
Change in valuation allowance | 182 |
| | (33,917 | ) | | (2,386 | ) |
Change in tax laws | 146 |
| | 67 |
| | (33 | ) |
Research incentives | (490 | ) | | (68 | ) | | (45 | ) |
Gain on sale of New Delphi equity interests | — |
| | — |
| | 599 |
|
Goodwill impairment | 124 |
| | 8,705 |
| | 377 |
|
Settlements of prior year tax matters | (473 | ) | | — |
| | (56 | ) |
VEBA contribution | — |
| | — |
| | (476 | ) |
Foreign currency remeasurement | (21 | ) | | (36 | ) | | 59 |
|
Pension contribution | — |
| | — |
| | (127 | ) |
U.S. salaried pension plan settlement | — |
| | 541 |
| | — |
|
Other adjustments | 162 |
| | (333 | ) | | (37 | ) |
Total income tax expense (benefit) | $ | 2,127 |
| | $ | (34,831 | ) | | $ | (110 | ) |
Deferred Income Tax Assets and Liabilities
Deferred income tax assets and liabilities at December 31, 2013 and 2012 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the bases of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carryforwards. The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities (dollars in millions):
|
| | | | | | | |
| December 31, 2013 | | December 31, 2012 |
Deferred tax assets | | | |
Postretirement benefits other than pensions | $ | 2,902 |
| | $ | 3,494 |
|
Pension and other employee benefit plans | 5,469 |
| | 8,536 |
|
Warranties, dealer and customer allowances, claims and discounts | 4,282 |
| | 4,277 |
|
Property, plants and equipment | 2,464 |
| | 2,225 |
|
Capitalized research expenditures | 7,179 |
| | 6,106 |
|
Operating loss and tax credit carryforwards(a) | 19,342 |
| | 20,220 |
|
Miscellaneous | 1,663 |
| | 3,443 |
|
Total deferred tax assets before valuation allowances | 43,301 |
| | 48,301 |
|
Less: valuation allowances | (10,823 | ) | | (10,991 | ) |
Total deferred tax assets | 32,478 |
| | 37,310 |
|
Deferred tax liabilities | | | |
Intangible assets | 397 |
| | 724 |
|
Net deferred tax assets | $ | 32,081 |
| | $ | 36,586 |
|
_________
| |
(a) | Includes operating loss and tax credit carryforwards of $16.3 billion expiring through 2033 and $3.0 billion that may be carried forward indefinitely at December 31, 2013. |
At December 31, 2013 we retained valuation allowances of $10.8 billion against deferred tax assets primarily in GME and South Korea business units with losses and in the U.S. and Canada related primarily to capital loss tax attributes and state operating loss carryforwards.
At December 31, 2012 as a result of sustained profitability in the U.S. and Canada evidenced by three years of earnings and the completion of our near- and medium-term business plans in the three months ended December 31, 2012 that forecast continuing profitability, we determined it was more likely than not future earnings will be sufficient to realize deferred tax assets in these two jurisdictions. Accordingly we reversed most of the U.S. and Canadian valuation allowances resulting in non-cash income tax benefits of $33.2 billion and $3.1 billion.
At December 31, 2011 as a result of sustained profitability in Australia, we released the valuation allowance against deferred tax assets. The reduction in the valuation allowance resulted in a non-cash income tax benefit of $502 million. In Australia we have net operating loss carryforwards which are subject to meeting a "Same Business Test" requirement that we assess on a quarterly basis. At December 31, 2013 as a result of our plans to cease vehicle and engine manufacturing at Holden, we determined that it was more likely than not Holden would not realize a portion of the deferred tax assets and recorded a valuation allowance in the amount of $133 million.
Uncertain Tax Positions
The following table summarizes activity of the total amounts of unrecognized tax benefits (dollars in millions):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Beginning balance | $ | 2,745 |
| | $ | 2,370 |
| | $ | 5,169 |
|
Additions to current year tax positions | 251 |
| | 112 |
| | 129 |
|
Additions to prior years' tax positions | 276 |
| | 512 |
| | 562 |
|
Reductions to prior years' tax positions | (535 | ) | | (141 | ) | | (1,002 | ) |
Reductions in tax positions due to lapse of statutory limitations | (73 | ) | | (34 | ) | | (64 | ) |
Settlements | (132 | ) | | (112 | ) | | (2,399 | ) |
Other | (2 | ) | | 38 |
| | (25 | ) |
Ending balance | $ | 2,530 |
| | $ | 2,745 |
| | $ | 2,370 |
|
At December 31, 2013 and 2012 there are $1.5 billion and $1.2 billion of unrecognized tax benefits that if recognized would favorably affect our effective tax rate in the future. In the years ended December 31, 2013, 2012 and 2011 we recorded income tax related interest expense (benefit) and penalties of $(25) million, $44 million and $(145) million. The interest and penalty benefit in the year ended December 31, 2011 was due primarily to remeasurements, settlements and statute expirations. At December 31, 2013 and 2012 we had liabilities of $286 million and $222 million for income tax related interest and penalties.
In November 2013 we remeasured a previously disclosed uncertain tax position and recorded a $473 million tax benefit that increased net operating loss carryforwards, reducing future taxable income.
In the year ended December 31, 2011 certain issues were resolved relating to uncertain tax positions in jurisdictions which had full valuation allowances. The resolution of these matters resulted in a $2.7 billion reduction to gross uncertain positions. No tax benefit was recognized with respect to these reductions because the entities were in full valuation allowance jurisdictions or the amounts were reserved in a prior period.
At December 31, 2013 it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.
Other Matters
Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2005 to 2013 with various significant tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. Given the global nature of our operations there is a risk that transfer pricing disputes may arise.
We have net operating loss carryforwards in Germany through November 30, 2009 that, as a result of reorganizations that took place in 2008 and 2009, were not recorded as deferred tax assets. Depending on the outcome of European court decisions these loss carryforwards may be available to reduce future taxable income in Germany.
In June 2011 we settled a Brazilian income tax matter for $241 million that was reserved and disclosed in a prior period.
In the U.S. we have continuing responsibility for Old GM's open tax years. Old GM was liquidated on December 15, 2011. The Internal Revenue Service has audited the returns through the liquidation date and, in January 2014, the audit of these returns was closed. The reduction to the amount of unrecognized tax benefits is not expected to be significant. In January 2013 the U.S. Congress enacted federal income tax legislation including an extension of the research credit for tax years 2012 and 2013. As a result, in the year ended December 31, 2013 we recorded an income tax benefit related to the 2012 research credit of approximately $200 million.
