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Assessing tax 2015 tax rate benchmarking study for industrial products and automotive sectors

Special report

The brave new world of taxation: The impact of technology

Benchmarking analysis for:

Aerospace & Defense

Automotive

Chemicals

Engineering & Construction

Industrial Manufacturing & Metals

Transportation & Logistics

Welcome to the 2015 edition of Assessing tax,

a benchmarking study for industrial products

and automotive sectors. This annual study

provides valuable data and insight into your

tax functions as you evaluate departmental

strategy and performance.

This year’s study begins with a special

report that considers the tax implications

of the accelerated technological changes that

are revolutionizing our world. With rapidly

shifting business models and a changing global

tax landscape, what will the tax function of the

future look like? How can companies prepare

now for what's ahead?

Also included in this year’s report is an

overview of tax rate metrics for 320 companies,

highlighting general trends and the drivers

of these trends across the sectors. A detailed

analysis is provided for the following industries:

Aerospace and Defense, Automotive, Chemicals,

Engineering and Construction, Industrial

Manufacturing and Metals, and Transportation

and Logistics.

We hope you find this latest edition a useful

tool in supporting your organization’s

business strategy.

Table of contents

Special report 1

The brave new world of taxation: The impact of technology 1

Benchmarking overview 5

Tax rate benchmarking for Industrial Products and Automotive sectors 5

Benchmarking by segment 14

Aerospace and Defense 14

Automotive 19

Chemicals 26

Engineering and Construction 32

Industrial Manufacturing and Metals 38

Transportation and Logistics 44

Appendix 50

Source of information and analysis 50

Contacts 51

1 Assessing tax: 2015 tax rate benchmarking study

Special report

The brave new world of taxation: The impact of technology

Technology is having a game-

changing effect on virtually every

aspect of society. But, as everyone

becomes connected to everything

(the Internet of Things), we will

experience exponentially greater

disruptions in the way we live

and do business. Technological

advances are driving changes to

business models and strategic

thinking and mandating an

increasing need for flexibility

in planning for the future.

We are witnessing a rapidly

growing shift in value-creation

from tangible, capital assets

(plant, property and equipment)

to intangible, or software,

assets. Value chains are being

reconfigured as new methods

of manufacturing, such as 3D

printing, bring production

closer to the customer. As

sensors and smart systems

become increasingly integrated

into machines, the value of the

hardware may be less than the

software; i.e., the value may

be greater in the data collected

and analyzed.

These revolutionary changes have

myriad implications for taxation:

How can a company optimize

profit under capital light models?

As 3D printing becomes more

mainstream, how will it change

the tax base? When customers buy

a machine, will they also receive

data, or will that information be

priced and taxed separately?

The answers to these types of

complex questions will impact

businesses worldwide.

Fortunately, while technology is

causing disruptions, it also

provides solutions. Short term,

technology will enable tax

departments to react to the

dramatic changes taking place in

industry. They can begin to

leverage and enhance their

capabilities to enable the tax

function to meet new strategic

demands and help mitigate

increasing risks. Longer term,

technology will reduce the

reporting and compliance burdens

of tax departments through

automation and analytics,

enabling tax to focus on and

provide strategic guidance around

essential business issues. Access

to rich sets of data will enable

real-time tax reporting

capabilities and predictive

analysis of the after-tax impact of

complex, cross-functional

business planning activities.

The tax function of the future

The tax function of the future will

be empowered by technology and

data, greatly enhancing efficiency

and effectiveness. Manual, time-

consuming tasks will be replaced

with automated solutions.

Most tax functions will receive

tax-related information from

enterprise-wide accounting

and consolidation systems or

centralized data warehouses. Tax

data will be shared across all

corporate departments and

integrated into planning for the

company as a whole, aligning tax

more closely with organizational

strategy. Online collaboration

tools will bring global resources

together and serve to automate

document management and

internal controls. Paper tracking

will give way to live data that will

be analyzed with advanced

software using sophisticated

predictive techniques and

compiled on the cloud. Tax

returns will be filed automatically,

transforming the nature of

compliance and tracking.

The use of integrated technology

will enable tax departments to

focus their attention on the tax

impact of broader issues being

considered by the company, such

as changing pricing trends, global

investment opportunities,

outsourcing and co-sourcing an

internal manufacturing process,

as well as moving from hard to

soft assets. Technology will

provide tax departments with the

analytic tools they need to help

model different scenarios to

address these types of critical

business questions.

Assessing tax: 2015 tax rate benchmarking study 2

The tax function of the future will

require a different mix of skill

sets: people with strong

technology skills, data mining and

analytic capabilities, and

specialized tax

advisors who understand

transaction-level detail and the

environment in which the

company operates. With these

skills in place, tax departments

will be able to identify

opportunities in different areas to

optimize their company’s tax

position as well as assist with

corporate planning and strategy

decisions. Fortunately with digital

data, teams will be able to work

virtually, allowing tax

departments to employ talent

anywhere in the world.

The challenges of the present

There are several factors

contributing to the pressure on

tax departments to begin

upgrading processes through

greater automation and increased

use of technology.

Rapidly shifting business models

Operating models are changing

more frequently in response to the

emergence of the digital era and

increased regulatory complexity

around the world. Trade and

investment is shifting to

developing countries with

greater risks and challenges and

differing, sometimes

contradictory, tax regulations.

The buying and selling of

intangible goods is becoming

increasingly important in the

world economy, making it more

difficult to follow revenue streams

and determine when and where

income should be taxed. Tax

departments need to look at

the tax impacts of sourcing in

different jurisdictions and

consider trade agreement benefits

in their analyses.

To address these types

of decisions as well as manage

risk, tax departments need to

coordinate closely with other

functions, such as research and

product development,

procurement, and supply chain

groups, to understand the product

pipeline and related customs

duty obligations and value

added tax implications. They

need mechanisms for collecting

data that will allow them to

perform such sophisticated tax

analyses in support of ongoing

business decisions.

New revenue recognition rules

scheduled for release in 2017

will require a closer look at how

different sales components drive

revenue. The current rules

differentiate between the revenue

recognition of sales for hardware

and software. Under the new

rules, the timing for both types of

sales is likely to be more aligned.

If an asset is sold along with an

information service, a company

will have to determine how and

when it will report revenue

appropriately. To prepare for

these rules, tax departments

should look at what revenues

and related amortization expenses

are being driven by software and

how to collect needed data and

perform the required analysis on

a recurring basis.


Changing global tax landscape

The global tax landscape is

changing rapidly, with tax

authorities demanding greater

transparency from taxpayers.

The 2007-09 global fiscal crisis

put pressure on governments to

control budget deficits and

increase tax revenue. As a result,

tax authorities, particularly from

the G20 countries, have proposed

greater transparency regarding

the tax affairs of multinational

companies. As an example, under

the new “country by country”

reporting requirements of the

Organization for Economic

Cooperation and Development

(OECD), multinational companies

will need to disclose to tax

authorities very detailed

information related to their global

business in every country where

they have a presence – not just for

activity within a particular

government’s jurisdiction.

Governments are also engaging in

unprecedented information

sharing among taxing

jurisdictions to enable them to

better assess audit risk and

compliance by taxpayers. Tax

audits and controversies are

expected to rise dramatically as

many governments seek more

revenue, requiring the tax

function to take a proactive

approach to ensure their

readiness in responding to

inquiries. Tax departments have

to be able to quickly compile,

reconcile and analyze data

requested by various taxing

authorities. The challenge for tax

departments is not just to deliver

the data, but to have an

in-depth understanding of that

data before responding to queries.

Another evolving development is

for tax authorities to pursue

initiatives that encourage real-

time engagement with taxpayers

to achieve immediate and more

certain compliance. The OECD,

for example, is supporting

cooperative compliance strategies

for member countries. In some

cases, tax authorities are

considering gathering general

ledger data directly from

corporations so they can perform

their own analysis of a taxpayer’s

footprint. These types of real-time

engagement efforts between

taxpayers and tax authorities

require tax departments to

maintain a robust tax control

framework with respect to risk

management and compliance, as

well as an ability to perform rapid

analysis of supporting data.

Preparing now for the future

To address the disruptive

forces that will challenge the

tax function as it strives to

meet the increasing demands

of company stakeholders,

practices and processes will

need to be redesigned to leverage

new technology resources.

Today’s manual and inefficient

processes will need to be

overhauled to meet current and

future demands. This overhaul

requires a long lead time,

significant investments and

alignment with finance, IT and

other functions. It is critical that

tax departments obtain budget

approval and corporate buy-in to

support the role of tax as a

strategic partner, to implement

the technology needed to

automate information-gathering

and develop analytics, and to

satisfy evolving talent

requirements needed to support

the expanding role of tax.

An important first step in

preparing for the future is to

assess the current capabilities of

the tax function within the

organization and determine how

to leverage new and existing

technology. For example, which

processes are automated and

which are manual? When data

come into the tax function, are

they already in a tax format ready

for processing and reporting?

Which tasks take significant time

and resources? Is the tax function

easily meeting financial statement

deadlines? Is tax fully supporting

the needs of the business by

responding quickly to planning

and other requests that require

analysis? Are chosen technologies

working in concert with each

other across company functions?


Contrasting the current state of

tax preparedness and

organizational goals with the tax

function of the future maturity

model (see figure below) will help

companies chart a course for

transformation and develop a

documented, strategic roadmap

for integrating technological

solutions. To achieve buy-in from

stakeholders and ensure success

in execution, it is imperative that

tax departments create a tailored

plan with measurable, phased

implementation objectives and

timelines that align with other

company initiatives. This

roadmap should delineate specific

capabilities needed to position the

tax function as a strategic partner

of the finance function and the

organization as a whole.

With the effective use of

technology, tax departments will

be able to address demands for

more taxpayer transparency, as

well as the increase in audits

and reporting complexity and

continual need for real-time

analytics and planning. With

thoughtful transformation now,

the tax function of the future,

through its use of technology and

analytics, will not only manage

compliance obligations, but

emerge as a critical, strategic

business asset.

Tax function of the future maturity model

Look for future PwC publications exploring different aspects of the tax function of the future

Level 5: Optimized

Processes are efficient, based on best practices and continuously monitored for improvement opportunities. Deliverables are high quality and the organization is able to adapt quickly. Integrated portal access crosses functions with advanced automated workflow, embedded controls, analytics and rules with actionable insight.

Level 4: Managed

Processes are actively monitored and deviations are detected in time. Processes are continuously improved in the area of efficiency. Technology tools are aligned with the overall organization and integrated, providing some predictive analytics. Robust controls define the process.

Level 3: Standardized

Processes are standardized, documented and communicated (e.g., through training). Compliance with these processes is still very personal. Deviations from the written procedure may remain unnoticed. Technology includes a mix of licensed software plus a tax sensitized ERP or tax data hub(s). Minimally acceptable internal controls are followed.

Level 2: Informal

Roles and responsibilities are mostly informal and the execution is based on experience within the processes. There is no formal training, communication or standardization. Licensed software is used with limited integration and internal controls are limited.

Level 1: Initial

The organization is mainly incident driven. Issues are addressed and handled at the time of occurrence on an ad hoc basis. Basic software is used but is not integrated and no internal controls are in place.


Benchmarking overview

Tax rate benchmarking for Industrial Products and Automotive sectors

Our tax rate benchmarking

study includes 320 industrial

products and automotive

companies. We analyzed the

effective tax rate (ETR) trends

over the last three years and the

key drivers behind these trends.

The report covers these six

industry sectors: Aerospace and

Defense (A&D), Automotive,

Chemicals, Engineering and

Construction (E&C), Industrial

Manufacturing and Metals

(IM&M), and Transportation

and Logistics (T&L).

Public interest in the amount of

tax paid by large corporations is

growing, and there is a general

perception that some companies

are not paying their “fair share”

of taxes. This has resulted in

demands for greater

transparency and, as noted in

our special report, some

governments are sharing

information among taxing

jurisdictions to enable them to

better assess audit risk. In the

current environment, in which

tax is becoming a reputational

issue, it is critical that tax

departments understand how

their effective tax rates compare

to those of their peer group and

to identify factors that might

result in the differences.

This study provides general

industry benchmarking. A

customized report based on the

publicly available data in this

study can be prepared for any

company interested in assessing

its performance in a particular

year or other period of time.

This kind of information can be

useful in preparing and

reviewing tax strategy and in

communicating that strategy to

a company’s board.

Our study uses publicly available

data for the past three years, up

to and including the year ended

Dec. 31, 2014. Data was sourced

from data providers and from

individual company reports.

Since a large number of

companies in the study are

headquartered in the United

States (143 companies), our

analysis includes specific US

reporting requirements relating

to unrecognized tax benefits,

undistributed earnings and the

statute of limitations.

This study contains a high-level

analysis of key tax ratios, with

no adjustments for one-time

distorting items or losses. While

losses, tax refunds and

exceptional items can serve as

drivers of an individual

company’s tax ratios,

the use of a statistically trimmed

sample serves to minimize the

impact of these drivers.

ETR for all companies

The ETR is the tax provision as a

percentage of the income before

corporate income tax, as taken

from the face of the income

statement. It provides a basic

indicator of the impact of tax on

income results.

We calculated a trimmed

average ETR, excluding extreme

values from both the top and

bottom of the data set. The

upper and lower quartiles

represent the ratios, for which

75 percent and 25 percent of

companies, respectively, fall

below that point (see appendix

for further explanation).

Income tax provisionETR

Income before corporate

income tax


Figure 1 shows the three-year

average ETR was 27.3 percent,

broadly constant over the three

years. The ETR of Quartile 1

showed an increase from 2012 to

2013 and little change from 2013

to 2014. Likewise, Quartile 3 was

steady over the three years. As the

global economy returns to growth,

losses are more limited and have a

less distortive impact on the ETR.

Figure 2 shows the distribution of

ETRs by sectors. Approximately

60 percent of companies’ ETRs for

A&D, Automotive, Chemicals, and

IM&M were between 21 percent

and 35 percent, while 29 percent

of T&L companies ranged

between 36 and 40 percent, which

resulted in the highest average

ETR for this sector. The ETR

distribution for E&C companies

was more volatile due to the losses

in this sector.

ETRs by country

We compared the statutory

corporate income tax rates with

ETRs by country for companies

that were profitable and paid tax

in each of the past three years

(“profitable companies”).

The data were averaged for

countries with sufficient numbers

of companies and applied to

profitable companies to remove

the impact of distorting ETRs

arising from losses in a small data

set (see appendix).

Figure 1 – ETR for all companies

Figure 2 – Range of ETRs by sectors in 2014

34.9% 35.3% 35.0%

26.8% 27.6% 27.4%

17.5%20.0% 20.1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012 2013 2014

Quartile 3 Average Quartile 1

12% 2% 10% 2% 16% 27% 16% 4% 2% 8%

12% 2% 5% 2% 5% 16% 26% 19% 7% 2% 3% 2%

4% 2% 4% 10% 4% 16% 27% 16% 6% 4% 2% 4%

15% 4% 4% 7% 9% 20% 20% 15% 2% 2% 2%

5% 5% 3% 2% 7% 15% 25% 20% 7% 2% 3% 5%

11% 4% 4% 7% 2% 2% 13% 11% 29% 4% 4% 4% 2%

0

1

2

3

4

5

6

7

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

A&D

Auto

Chemicals

E&C

IM&M

T&L

<0% 0%-

5%

6%-

10%

11%-

15%

16%-

20%

21%-

25%

26%-

30%

31%-

35%

36%-

40%

41%-

45%

46%-

50%

51%-

55%

56%-

60%

>60%


Figure 3 shows a comparison of

statutory and average ETRs by

country for 2014. The number of

companies included in each

average is indicated in the chart

next to the country name. While

Japan, Switzerland, Hong Kong

and Canada had statutory tax

rates that were similar to their

ETRs, South Korea and Sweden

had ETRs that were higher than

their statutory tax rates. The ETRs

were below the statutory tax rates

for the remaining countries,

although the differential was

small for the United Kingdom

(UK), Germany and France.

The differential is more than 5

percentage points for the United

States, Sweden and South Korea.

For the United States and

Sweden, this large differential is

consistent with 2013; there were

insufficient data for South Korea

to allow for a similar comparison.

As expected, companies

headquartered in countries with

statutory rates in the upper half

of the peer group have, on

average, ETRs below the

statutory rates, reflecting the

impact of foreign operations in

jurisdictions with lower rates.

The statutory rates ranged from

39.1 percent to 16.5 percent, a

difference of 22.6 percentage

points. But the ETR range was

smaller, from 34.2 percent to

14.5 percent, a difference of just

19.7 percentage points.

ETRs for US-based and non-US-based companies

Figure 4 shows the average ETR

for US-based and non-US-based

companies for 2012-14. The three-

year average ETR for the 143 US-

based companies was 28.6

percent, compared to 25.9 percent

for the 159 non-US-based-

companies. The US statutory tax

rate was the highest among the

OECD countries (39.1 percent vs.

the average of 24.8 percent), but

the range between the ETRs for

US-based and non-US-based

companies, many in the OECD,

was small (2.7 percentage points).

Figure 3 – Statutory corporate income tax rates and ETRs in 2014

Figure 4 – US-based vs. non-US-based ETRs

14.5%16.3%

21.6%

27.5% 30.6% 27.5%

25.5%30.2%

34.2% 31.0%16.5%

21.0%

21.1% 22.0% 24.2%26.3%

30.2%34.4%

37.0% 39.1%

0%

10%

20%

30%

40%

Hong K

on

g (

6)

United K

ingdom

(5)

Sw

itzerlan

d (

5)

Sw

eden (

7)

So

uth

Kore

a (

6)

Canada

(4)

Germ

any (

17)

Fra

nce

(16)

Jap

an (

31)

United S

tate

s (

95)

ETR Statutory rate

28.2% 29.3% 28.4%

25.3% 26.0% 26.3%

0%

10%

20%

30%

40%

2012 2013 2014

US average ETR Non-US average ETR


ETRs by sectors


average ETR for all companies

and for profitable companies.

While the three-year average

ETR was the lowest for all E&C

companies, the ETRs for the

profitable companies in this

sector ranked second highest of

the peer group, reflecting the

impact of loss-making

companies. By contrast, loss-

making companies had a limited

impact on the ETRs for the A&D,

Chemicals, and IM&M sectors,

and these sectors have ETRs that

change only minimally with the

removal of loss-making

companies. The T&L sector has

the highest ETRs in the study, a

reflection of this sector earning a

majority of its income in higher

taxed countries

Drivers of the ETR

The difference between the ETR

and statutory rate can be derived

by analyzing the statutory/

effective rate reconciliation

notes disclosed in a company’s

annual report. We categorized

differences into favorable and

unfavorable drivers. A favorable

driver explains a reduction in

the tax provision and, therefore,

accounts for an ETR lower than

the statutory rate; it could be tax

incentives or nontaxable income.

An unfavorable driver, such as

nondeductible expenses,

increases the tax provisions and,

accordingly, results in an ETR

higher than the statutory rate.

Drivers can be both structural

and recurring, such as lower tax

rates resulting from overseas

operations and tax incentives, or

a result of items such as losses,

which may not necessarily recur.

We analyzed the common

drivers and their impacts on

the ETR. The reconciling

items, as disclosed in the

statutory/effective rate

reconciliation, were analyzed,

collated and averaged for the

companies in the study. Single

outlying ratios in the data

were excluded.

Figure 5 – Three-year average ETR for all companies and profitable companies by sector

0% 10% 20% 30% 40%

T&L

IM&M

E&C

Chemicals

Auto

A&D

3-year average ETR for profitable companies

3 year average ETR for all companies


Figure 6 – Drivers of the ETR in 2014

Figure 6 illustrates some drivers

of the ETR and shows how

frequently they appear in

companies’ statutory

reconciliations for 2014. The

bars on the left show the number

of companies reporting the

driver. The 0 percent vertical

line represents the statutory

rate, and the bars originating on

this line show the impact of the

driver, both favorable and

unfavorable. The impacts of

foreign operations, for example,

reduced the ETR of companies

by 1.4 percentage points on

average; nondeductible expenses

increased the ETR by 0.8

percentage points.

1 The majority of the UK companies in the study operate in the A&D sector, which benefits from tax incentives, resulting in a higher average impact.

Impact of equity earnings

The impact of earnings, or

minority interest, was the largest

favorable driver, reducing the

ETR by 4.1 percentage points.

Although reported by only 54

companies, it may indicate

increased joint-venture and

associate activity in the sector.

The reconciling item is the result

of an accounting adjustment

under International Financial

Reporting Standards (IFRS),

in which a company presents

its share of the associate’s post-

tax profits and losses in the

income tax statement. Since

there is no associated tax charge,

this is a favorable reconciling

item in the statutory/effective

tax rate reconciliation.

Tax incentives

Tax incentives were the second

major favorable driver in 2014,

reported by 143 companies, and

they decreased the ETR by 3.5

percentage points. Tax incentive

descriptions included domestic

manufacturing deductions, R&D

(research and development)

credits and general business

credits. The average benefit for

US-based companies was 3.2

percentage points. Figure 7

shows the overall impact of tax

incentives by country (where

sufficient data were available).

1.3%

0.8%

0.8%

0.5%

0.2%

-0.8%

-1.4%

-3.5%

-4.1%

63

150

144

60

211

116

230

143

54

- 500 1,000 1,500 2,000 2,500

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Change in tax rate

Non-taxable income and non-deductible expenses

Tax losses and changes in the valuation allowance

Various other adjustments

Other - company description

Tax reserve adjustments

Impact of foreign operations

Tax incentives


Average impact of drivers Number of companies

Figure 7 – Impact of tax incentives by country

Country Average impact of tax incentives (percentage)

Number of companies

France -4.7 13

Germany -1.5 3

Japan -2.9 13

UK1 -4.4 7

US -3.2 93



The impact of foreign operations

was the most common reconciling

item, reported by 230 companies.

This item, which is usually a

structural, recurring driver,

had an overall benefit of 1.4

percentage points. The average

favorable impact for countries

with high statutory tax rates was,

as expected, greater than that

for other countries and foreign

operations are an unfavorable

reconciling item for lower taxed

countries, including Netherlands,

Sweden and Switzerland.

Figure 8 shows the overall

impact of foreign operations

by country (where sufficient

data were available).


This reconciling item includes net

adjustment of prior-year federal

and state tax accruals, contingent

tax liabilities, changes in prior-

year estimates, audit settlements

and tax audits, and unrecognized

tax positions. Although these

items had both negative and

positive effects, the favorable

impact was driven by the net

adjustment of the prior year’s

federal tax and audit settlement.

There were 70 companies with a

favorable impact and 46

companies with an unfavorable

impact.

“Other” in company descriptions

This category represents the line

described as “other” in company

reconciliations. No further details

were available.


This category included

descriptions, such as depletion,

stock options and sector specific

taxes, which are consolidated

under one heading to avoid

excessive detail.

Tax losses and change in valuation allowance

Tax losses and changes in

valuation allowances included

losses not available to carry

forward, the effect of the

nonrecognition of deferred tax

assets, changes in valuation

allowances, recognition of

previously unrecognized deferred

tax assets and tax losses utilized.

Although there were both positive

and negative reconciling items,

the net of these items overall was

an increase of 0.8 percentage

points in the ETR.

Nontaxable income and nondeductible expenses

Nontaxable income and

nondeductible expenses had an

average impact of 0.8 percentage

points. This reconciling item

contained broad descriptions such

as permanent difference, goodwill

impairment, and nontaxable

income. Net nondeductible

expenses increased the ETRs for

all sectors.

Change in rate

A change in tax rates results in a

revaluation of deferred tax assets

and deferred tax liabilities. In the

study, 42 companies reported that

a change in tax rate decreased the

benefit of deferred tax assets and,

consequently, increased income

tax expense. By contrast, 21

companies recognized a decrease

in deferred tax liabilities, which

reduced income tax expense.

Figure 8 – Impact of foreign operations by country

Country Average impact of foreign operations (percentage)

Number of companies

France -4.6 18

Germany -2.0 21

Japan -2.6 19

Netherlands 2.8 6

Sweden 4.2 5

Switzerland 1.2 4

UK 1.1 8

US -1.6 126


Significant drivers by sector

Figure 9 shows that the impact of

foreign operations had the

greatest benefit for the IM&M

sector. The companies that

reported this reconciling item

were mainly located in the United

States and Japan, countries with

lower effective tax rates than

statutory tax rates.

Figure 10 shows that the A&D

and Automotive sectors derived

the greatest benefits from tax

incentives, specifically, R&D

credits due to the nature of

their businesses. The driver is

significant for industrial

products and automotive

companies, reflecting

governments’ R&D policies.

Tax disclosures

Tax is increasingly becoming an

item on the boardroom agenda.

Given the increase in tax

controversies and disputes,

companies are facing increasing

scrutiny of their tax strategies

both domestically and globally.

We reviewed three areas of tax

disclosures for the US

companies in the study to

provide insights into trends.

Figure 9 – Impact of foreign operations in 2014

Figure 10 – Impact of tax incentives in 2014

1.2%

1.1%

-1.4%

-2.5%

-2.8%

-4.0%

35

38

40

40

38

45

- 100 200 300

-7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0%

T&L

E&C

A&D

Auto

Chemicals

IM&M

Average impact of foreign operations Number of companies

-1.6%

-2.3%

-2.6%

-3.0%

-4.5%

-4.8%

8

30

18

27

26

38

- 100 200 300

-7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0%

T&L

IM&M

E&C

Chemicals

Auto

A&D

Average impact of tax incentives Number of companies


Unrecognized tax benefits

Accounting for uncertainty

in income taxes can be

complex, but there are criteria

established in the United States

for recognizing and measuring

unrecognized tax benefits

(UTBs). Figure 11 shows the

UTB balances by sector. The

average UTB for companies

reporting this item under US

disclosure requirements was

$253 million, an increase of

1.0 percent from 2013 to 2014.

Overall, A&D, Chemicals, and

T&L sectors saw an increase

in UTBs.

Unrepatriated foreign earnings

US-based multinationals doing

business outside the United

States are required to account

for the tax effects (deferred tax

liability) associated with

remitting such earnings to the

United States, unless those

unremitted earnings are

permanently reinvested outside

the country. Figure 12 shows

2013 and 2014 balances of

accumulated unrepatriated

foreign earnings by sector.

While there are several

factors driving these balances,

one is the ability to operate

across international borders.

Sectors that operate more

internationally, such

as Chemicals and IM&M,

have much larger

unrepatriated earnings.

Figure 11 – Trends for UTB balances

Figure 12 – Accumulated unrepatriated earnings by sector

0 5,000 10,000 15,000

T&L

IM&M

E&C

Chemicals

Auto

A&D

Millions $

2011 2012 2013 2014

0

50

100

150

200

250

E&C T&L Auto A&D Chemicals IM&M

Bil

lio

n $

2013 2014


Statute of limitations

Figure 13 shows the average

number of open tax years (which

remain subject to examination

by US tax jurisdictions) by

sector. The overall average was

six years; the Automotive,

Chemicals, and IM&M sectors

had the highest average number

of open tax years.

Figure 13 – Open tax years on average by sector

6

7

6

7

7

4

T&L

IM&M

E&C

Chemicals

Auto

A&D


Benchmarking by segment

Aerospace and Defense

Tax rate benchmarking for the Aerospace and Defense (A&D) sector

A focus on innovation was

important for companies in this

sector in 2014. Many companies

reported that investment in

research & development (R&D)

programs improved efficiency.

An increase in global air traffic

and a decline in oil prices spurred

growth in the Aerospace sector.

Low interest rates, available

financing, demand in emerging

markets and an improvement in

the world’s major economies

contributed to more orders for

new airplanes. However, there

have been regional variations.

Economic expansion in the United

States had a favorable effect on

domestic Aerospace companies,

while European companies faced

increasing deflationary pressure

and political tensions in

Eastern Europe.

In contrast, the Defense sector has

been under pressure in 2014,

facing uncertainties arising from

new and changing requirements

and restricted military budgets.

These conditions affected

financial performance,

moderating sector growth.

Fifty A&D companies were

included in this year’s

benchmarking study: 35

companies with December

year-ends, six companies with

March year-ends, and the

remainder with other year-ends.

Data for one company were not

available at the time the study was

finalized. The companies included

in the study are listed at the end of

this section.



average ETR was 26.6 percent for

the A&D sector as a whole. The

average and Quartile 1 showed a

steady trend over three years,

while there was a decrease of 1.3

percentage points in Quartile 3.

The three-year average ETR for 23

companies was below the sector

average, while for 26 companies it

was above the average.

Eight companies in the study saw

a reduction in the ETR of more

than 10 percentage points from

2013, and six companies saw an

increase of more than 10

percentage points.

Figure 1 – ETR for the A&D sector

32.6% 32.5%31.3%

26.5% 27.1% 26.2%

19.6% 20.2% 19.7%

0%

5%

10%

15%

20%

25%

30%

35%

2012 2013 2014



ETR for profitable companies

Three companies had losses and

five companies were in a tax

benefit position in 2014. With the

data for companies with a loss or

tax benefit removed, the three-

year average ETR for profitable

companies was 28.1 percent. For

these companies, the maximum

ETR in 2014 was 225.4 percent

and the minimum was

7.9 percent.

ETR for US-based and non-US-based companies

There were 30 US-based

companies with a three-year

average ETR of 29.6 percent.

For the 19 non-US-based

companies, the rate was 23.2

percent. This differential between

US-based and non-US-based

companies is a reflection of the

domestic operations of the sector,

particularly Defense companies.

ETR for subsectors

The study included the

following subsectors: Aerospace

(26 companies), Defense

(18 companies) and other

(5 companies). The three-year

average ETR for the Aerospace

companies was 25.1 percent, and

for Defense companies, it was

29.8 percent.

Drivers of the ETR

Forty-eight companies disclosed

reconciliation between the

statutory and effective rates in

their company accounts. For 38 of

these companies, the ETR was

below the statutory rate, and for

the remaining 10 companies, it

was above. The reconciling items

as disclosed in the

statutory/effective tax rate

reconciliation were analyzed,

collated and averaged for

the sample.

Figure 2 shows how frequently

the drivers appeared in


reconciliations and the impact

they had on the ETR. The bars on

the left in the chart show the

number of companies reporting

the driver. The 0 percent line

represents the statutory rate, and

the bars on this line show the

impact of the driver, both

favorable and unfavorable,

excluding single outlying

distorting ratios.

For the A&D sector, the most

favorable driver was tax

incentives, which decreased the


Thirty-eight companies reported

this driver, with descriptions of

tax benefits, domestic

manufacturing deductions, R&D

and general business credits. The

benefit of tax incentives on the

ETR for 26 US-based companies

was 3.5 percentage points.


reduced the ETR by 1.4

percentage points and was

reported by 40 companies. The

favorable impact of foreign

operations was 2.3 percentage

points for Aerospace companies,

while this impact was only 0.4

for Defense companies.

Companies in the Defense sector

tend to operate in their home

territories.

Figure 2 – Drivers of the ETR in the A&D sector in 2014

1.8%

0.8%

-0.3%

-0.8%

-1.4%

-1.4%

-1.9%

-4.8%

13

15

38

8

16

40

30

38

- 100 200 300

-7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0%




Change in tax rate




Tax incentives



Tax reserve adjustments were

reported by 30 companies.

Although this driver has been

reported in both directions

(a favorable impact for 20

companies and unfavorable

impact for 10 companies), the

average impact was favorable

(1.9 percentage points).

Nontaxable income and

nondeductible expenses were

reported by 15 companies, with

an unfavorable impact of 0.8

percentage points. The

descriptions in this reconciling

item were broad, including

tax-exempt income,

nondeductible expenses and

goodwill impairment. Tax losses

and changes in the valuation

allowance was the most

unfavorable driver, reported by

13 companies, which had an

unfavorable impact of 1.8

percentage points on average.


Accounting for uncertainty in

income taxes can be complex,

but there are criteria established

in the United States for

recognizing and measuring

unrecognized tax benefits (UTBs).

Figure 3 shows that total UTB

balances in 27

US-based companies increased

by 15.1 percentage points

from 2011 to 2014, using

2011 UTB balances as a baseline.

Total UTBs for all companies by

2014 was $4.3 billion. On an

individual company basis, the

average UTB was $160 million.

The UTB balances for companies

that disclosed drivers increased by

0.5 percent in the past year. As

indicated in Figure 4, the largest

movements were in additions

based on tax positions related to

the prior year (PY), which drove

the overall increase.

Figure 3 – UTB balances in the A&D sector

Figure 4 – Disclosure of the drivers of UTB in the A&D sector

100.0% 105.6% 114.5% 115.1%

0%

20%

40%

60%

80%

100%

120%

140%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2011 2012 2013 2014

Mil

lio

n $

Closing balances Trend

23 15 19 13 15 5 1 1-1,200

-800

-400

0

400

800

1,200

Ad

ditio

ns for

tax

positio

ns o

f P

Y

Reductio

ns for

tax

positio

ns o

f P

Y

Ad

ditio

ns b

ased o

n tax

positio

ns r

ela

ted

to C

Y

Se

ttle

ments

Reductio

ns d

ue to

lapse o

f applic

able

sta

tute

of lim

itatio

ns

Fo

reig

ncurr

ency tra

nsla

tio

n

Clo

sure

of ta

x y

ears

Ad

ditio

ns

from

acqu

isitio

ns

Mil

lio

n $

Number of companies


Unrepatriated earnings


business outside the United States

are required to account for the tax

effects (deferred tax liability)

associated with remitting such

earnings to the United States,

unless those unremitted earnings

are permanently reinvested

outside the United States. The

amount of undistributed non-US

earnings has grown in recent

years. Seventeen US-based

multinationals disclosed the

cumulative amount of

undistributed earnings from their

foreign subsidiaries on which the

parent company had not

recognized income tax.

Figure 5 shows the 17 US-based

multinationals that disclosed

the average movement of

undistributed earnings as a

percentage of foreign income

before tax.


Figure 6 shows the number of tax

years for 29 companies that

remain subject to examination by

US tax jurisdictions. The majority

of companies have agreed years

prior to 2011, but one company

still has 17 years under

negotiation with US tax

authorities. The average number

of open tax years was four.

Figure 5 – Increase in unrepatriated earnings from 2013 to 2014 as a percentage of foreign income before tax in 2014

Figure 6 – Number of tax years that remain subject to examination in the A&D sector

-200%

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Each bar represents a company

17

8

7

6

5

4

3

2

1

1

3

1

3

2

9

3

2

5

-20 -15 -10 -5 0 5 10

1

2

3

4

5

6

7

8

9

Number of open tax years Number of companies


Aerospace and Defense companies

AAR Corp.

AeroVironment, Inc.

Airbus Group

ATK

Babcock International Group plc

BAE Systems plc

BBA Aviation plc

B/E Aerospace, Inc.

(The) Boeing Co.

Bombardier, Inc.

Cobham plc

Curtiss-Wright Corp.

Dassault Aviation S.A.

Ducommun, Inc.

Elbit Systems Ltd.

Embraer S.A.

Engility Holdings, Inc.

Esterline Technologies Corp.

Exelis, Inc.

Finmeccanica SPA

FLIR Systems, Inc.

Gencorp Inc.

General Dynamics Corp.

HEICO Corp

Hexcel Corp.

Hindustan Aeronautics Ltd.

Honeywell International, Inc.

L-3 Communications Holdings, Inc.

Lockheed Martin Corp.

Meggitt plc

Moog Inc.

Northrop Grumman Corp.

Precision Castparts Corp.

QinetiQ Group plc

Raytheon Co.

Rheinmetall AG

Rockwell Collins, Inc.

Rolls-Royce Group plc

RUAG Holding AG

Safran S.A.

SAIC, Inc.

Smith & Wesson Holding Corp.

Spirit AeroSystems Holdings, Inc.

TASER International, Inc.

Teledyne Technologies, Inc.

Textron, Inc.

Thales S.A.

Triumph Group Inc.

United Technologies Corp.

Zodiac Aerospace S.A.


Automotive

Tax rate benchmarking for the Automotive sector

Global light vehicle assembly grew

a modest 2.7% in 2014, pushing

the topline to 85.2 million units.

Leading the way were China

and North America, which saw

assembly increases of 1.8 million

and 732 thousand units,

respectively. While China’s

growth was largely expected, the

impressive gains in North

America surprised many analysts.

While much has been made of

ongoing and future investment in

Mexico, most of the region’s

growth actually came from the

United States (+564k), driven

by assembly localization and

another year of impressive sales

(16.4 million units).

However, economic struggles

in Brazil, sanctions and a

depreciating ruble in Russia, and

continued stagnation in developed

areas of the Asia-Pacific region

present serious areas of concern

for the global industry. While

Autofacts anticipates a recovery to

begin in Brazil in 2016, the same

cannot be said for Russia, where

low oil prices hamper the outlook

for Eastern Europe’s largest

market. While close attention will

be paid to these developing

situations in the coming months,

Autofacts remains optimistic that

global assembly will accelerate in

2015, reaching 90 million units.

Free-falling oil prices, and their

impact on both demand and

segmentation, was also a

significant story line in 2014.

Toward the end of the year, there

was a clear segmentation shift in

markets such as a massive uptick

in the sale of pickups and SUVs in

the United States, thanks to low

fuel prices. With oil prices

dropping nearly 50 percent in

2014, reaching a six-year low in

January (Brent: $50.96/barrel),

the immediate impact seems to be

positive for the industry. But

looking through a longer lens, it

presents concerns around

development (and consumer

demand) of alternative propulsion

technology. In a time of

increasingly stringent global

emission standards, the industry

may have yet another hurdle to

face if fuel prices continue to

remain low.

Sixty-five automotive companies

were included in this year’s


companies with December year-

ends, 14 companies with March

year-ends, and the remainder

with other year-ends. Data for six

companies were not available at

time the study was finalized.

The companies included in the

study are listed at the end of

this section.




the Automotive sector as a whole.

ETRs for Quartile 1 had an

upward trend over three years,

while there was more volatility in

the average and Quartile 3, with

31 companies experiencing a

reduction in their ETR from 2013

to 2014.

Twelve companies in the study

saw a reduction in ETR of more




percentage points.

Figure 1 – ETR for the Automotive sector

32.5%34.4%

32.9%

25.0%27.6%

26.0%

15.6%

18.9%20.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012 2013 2014




With the data for companies with

a loss or tax benefit removed, the

three-year average ETR for

profitable companies was 28.7

percent. For these companies, the

maximum ETR in 2014 was 56.1

percent and the minimum was

6.4 percent.

ETR by regions

There were eight profitable North

American-based companies with a

three-year average ETR of 27.8

percent. For 19 profitable

companies in Asia, the three-year

average ETR was 31.9 percent,

and for 17 profitable companies in

Europe, it was 25.5 percent.

ETR for subsectors

The study included the following

subsectors: Automobiles

(19 companies) and Auto Parts

(40 companies). The three-year

average ETR for the Automobile

companies was 21.9 percent

(25.7 percent for profitable

companies) and 27.8 percent

for the Auto Parts companies in

2014 (29.9 percent for

profitable companies).

Drivers of the ETR

Forty-five companies disclosed

reconciliation between their


their company accounts. For 33

companies, the ETR was below

the statutory rate, and for 12

companies, it was above. The

reconciling items as disclosed in

the statutory/effective tax rate


collated, and averaged for

the sample.

Figure 2 – ETR of the Automotive sector by region

0%

5%

10%

15%

20%

25%

30%

35%

Asia (19 companies) North America (8companies)

Europe (17 companies)







the left of the chart show the




the bars originating on this line

show the impact of the driver,

both favorable and unfavorable,


distorting ratios.

The most common driver for this

sector was the impact of foreign

operations, reported by 40

companies, which decreased the

ETR by 2.5 percentage points. The

impact of this reconciling item

was lower than in the previous

year’s study (4.9 percentage

points), which might result from

behavioral change in the current

tax environment or falling

statutory rates of corporate tax

around the world. For 15 US-

based companies, the favorable

impact was 3.4 percentage points,

while the favorable impact was

2.0 percentage points for

25 non-US-based companies.

The most favorable reconciling

item was equity earnings, which

decreased the ETR by 4.7

percentage points; this item was

reported by only 14 companies.

Tax incentives had a great benefit

for the Automotive sector,

reducing the ETR on average by

4.5 percentage points. The benefit

varied by country: 5.5 percentage

points in the United States, 4.0 in

Japan and 3.7 in France.

Tax losses and changes in

valuation allowances, reported by

36 companies, had an unfavorable

impact of 2.4 percentage points.

This reconciling item can increase

the ETR where losses cannot be

recognized and decrease the ETR

where losses previously

unrecognized have been or are

expected to be utilized. There

were 12 companies with a

favorable impact and 24

companies with an

unfavorable impact.

Changes in statutory tax rates

increased the ETR on average by

1.5 percentage points, reported by

19 companies. For example, the

statutory rate change in the UK,

Japan and Sweden increased

ETRs because the rate change was

applied to deferred tax assets

and liabilities.

Figure 3 – Drivers of the ETR in the Automotive sector in 2014

2.4%

1.5%

1.1%

0.4%

0.2%

0.1%

-2.5%

-4.5%

-4.7%

36

19

26

7

35

25

40

26

14

- 100 200 300

-6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%


Change in tax rate






Tax incentives






income taxes can be complex, but

the United States has established

criteria for recognizing and

measuring unrecognized tax

benefits (UTBs). Figure 4 shows

that total UTB balances in 18 US-

based companies decreased by

12.3 percentage points from 2011

to 2014, using 2011 UTB balances

as a baseline. Total UTBs for all

companies in 2014 was $6.7

billion. On an individual company

basis, the average UTB was

$374 million.


that disclosed drivers decreased

by 7.4 percent over the past year.

As indicated in Figure 5, the

largest movements were in

reductions based on tax positions

related to the prior year (PY) and

settlements, which drove the

overall decrease.

Figure 4 – UTB balances in the Automotive sector

Figure 5 – Disclosure of the drivers of UTB in the Automotive sector

100.0% 97.9% 94.7%

87.7%

0%

20%

40%

60%

80%

100%

120%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2011 2012 2013 2014M

illi

on

$


15 14 15 13 13 9

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

Ad

ditio

ns for

tax

positio

ns o

f P

Y

Red

uctio

ns fo

r ta

xp

ositio

ns o

f P

Y

Ad

ditio

ns b

ased o

n tax

positio

ns r

ela

ted

to C

Y

Se

ttle

ments

Reductio

ns d

ue to

lapse o

f applic

able

sta

tute

of lim

itatio

ns

Fo

reig

ncurr

ency tra

nsla

tio

n

Mil

lio

n $

Number of companies














years. Fifteen US-based




foreign subsidiaries on which the








before tax. Two companies were

excluded from the data set due to

the distorting impact.


-200%

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

1 2 3 4 5 6 7 8 9 10 11 12 13









prior to 2009, but two companies

still have 14 and 15 years,

respectively, under negotiation

with US tax authorities. The

average number of open tax years

was seven.

Figure 7 – Number of tax years that remain subject to examination in the Automotive sector

15

14

12

9

6

5

4

1

1

1

1

6

2

5

-20 -15 -10 -5 0 5 10

0 5 10 15 20 25 30

1

2

3

4

5

6

7



Automotive companies

AB Volvo

Aisin Seiki Co., Ltd.

Audi AG

Autoliv, Inc.

Bayerische Motoren Werke AG

BorgWarner, Inc.

Bridgestone Corp.

Brilliance China Automotive Holdings Ltd.

Caterpillar, Inc.

China FAW

Chrysler Group LLC

Continental AG

Cooper Standard Automotive Inc.

Cooper Tire & Rubber Co.

Cummins, Inc.

Daimler AG

Dana Holding Corp.

Delphi Automotive plc

Denso Corp.

Dongfeng Motor Group Co., Ltd.

Faurecia

Federal Mogul Corp.

Fiat S.P.A.

Ford Motor Co.

General Motors Co.

GKN plc

Goodyear Tire & Rubber Co.

Honda Motor Co., Ltd.

Hyundai Mobis Co., Ltd.

Hyundai Motor Co.

Johnson Controls, Inc.

JTEKT

Kia Motors Corp.

Lear Corp.

Magna International, Inc.

Mazda Motor Corp.

Meritor, Inc.

Michelin Corp.

Navistar International

Nemak S.A.

Nissan Motor Co., Ltd.

NSK

Pirelli & C. S.P.A.

Plastic Omnium

Porsche Automobile Holding SE

PSA Peugeot Citroën

Renault S.A.

SAIC Motor Corp. Ltd.

SKF

Sumitomo Electric Industries, Ltd.

Suzuki Motor Corp.

Tata Motors, Ltd.

Tenneco, Inc.

Tesla Motors

Toyoda Gosei

Toyota Boshuku

Toyota Industries Corp.

Toyota Motor Corp.

Trelleborg Automotive

TRW Automotive Holdings Corp.

Valeo

Volkswagen AG

Yokohama Tire Corp.

Zhejiang Geely Holding Group

ZF Friedrichshafen AG


Chemicals

Tax rate benchmarking for the Chemicals sector

Emerging markets have been a

key driver of growth in the

Chemicals sector in recent years.

In 2014, these developing markets

experienced multiple challenges:

current account deficit,

depreciation of local currency

and capital outflows, resulting in

a slowdown in economic growth.

At the same time, companies in

the United States and Europe saw

a gradual recovery that drove

overall growth in the sector.

Since manufacturing processes

require energy and raw materials,

lower oil prices have had a

positive impact on Chemicals

companies, reducing their

costs and improving cash flow.

However, some companies noted

that greenhouse-gas regulations

could increase energy costs and

price volatility. Research &

development (R&D) was again a

key element for many companies,

with the focus of innovation

continuing to move away from

blockbuster breakthroughs and

toward incremental solutions

targeted at particular problems.

The abundance of low-cost shale

gas in North America and the use

of the byproducts of shale gas

extraction as key raw materials in

the Chemicals market have

enabled Chemicals companies to

reduce their costs. This cost

reduction has provided an

incentive for many in the sector

to invest in operations in the

United States, putting pressure on

some companies to raise capital to

fund these investments.

Fifty-one Chemicals companies

were included in this year’s


companies with December year-

ends, six companies with March

year-ends, and the remainder

with other year-ends. The data for

two companies were not available

at the time the study was



this section.


Figure 1 shows that the three-year


the Chemicals sector as a whole.

The ETRs of the average remained

constant over the three years,

while Quartiles 1 and 3 showed

increases from 2013 to 2014. The

increase in ETR in Quartile 3 from

2013 to 2014 was driven by loss-

making companies. Excluding

these companies, the ETRs of

Quartile 1 still showed an upward

trend, perhaps due to increasing

scrutiny of corporate income tax

rates or perhaps it was a reflection

of the investment due to shale gas,

which may have resulted in a shift

in the profit mix to the United

States—a high-tax jurisdiction.

The three-year average ETR for 25

companies was above the sector

average, while it was below the

average for 24 companies.

Figure 1 – ETR for the Chemicals sector

31.7% 31.6%33.8%

27.2% 26.9% 26.9%

21.8%22.5% 23.5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012 2013 2014



Six companies in the study saw a

reduction in the ETR of more




percentage points.


There were three companies

with losses and three companies

in a tax benefit position in 2014.

With the data for companies

with a loss or tax benefit in any

of the three years removed, the



percent. The maximum ETR in

2014 was 48.3 percent and the

minimum was 4.2 percent.


The three-year average ETR for

the 27 US-based companies was

26.8 percent. The rate for the 22

non-US-based companies was

27.3 percent.

ETR for subsectors


subsectors: Commodity

Chemicals (16 companies),

Specialty Chemicals (27

companies), and other (6

companies). The three-year

average ETR for Commodity

Chemicals companies was 25.8

percent, and for Specialty

Chemicals companies, it was

27.2 percent.

Drivers of the ETR in the Chemicals sector

Forty-two companies disclosed

reconciliation between the


their company accounts. For 35

companies, the ETR was below

the statutory rate, and for seven

companies, it was above. The

reconciling items as disclosed in

the statutory/effective rate



the sample.





they had on the ETR. The bars

on the left of the chart show the



represents the statutory rate,

and the bars on this line show

the impact of the driver, both

favorable and unfavorable,


distorting ratios.

The most common reconciling

item, reported by 38 companies,

was the impact of foreign

operations, which lowered the

ETR on average by 2.8

percentage points. For US-based

companies, this reconciling item


percentage points on average. In

contrast, for non-US-based

companies, the impact of foreign

operations increased the ETR

by 1.6 percentage points

on average.

Tax incentives, such as domestic

manufacturing deductions and

R&D credits, were reported by

27 companies, they reduced the

average ETR by 3.0 percentage

points. For US-based

companies, the overall favorable

impact was also 3.0 percentage

points, while for non-US-based

companies, this driver


percentage points.

The impact of equity earnings or

minority interest was reported

by 11 companies and reduced the

ETR by 2.8 percentage points,

indicating increased joint-

venture and associate activity.

Under International Financial

Reporting Standards (IFRS), a

company presents its share of

the associate’s post-tax profits

and losses in the income tax

statement. But since there is no

associated tax charge, this is a

favorable reconciling item in the

statutory/effective tax

rate reconciliation.


mainly reflected the average

impact of depletion, adjustments

for planned dividend

distributions, and other

uncommon and one-off items.




income taxes can be complex,

but the United States has

established criteria for

recognizing and measuring

unrecognized tax benefits

(UTBs). Figure 3 shows that

total UTB balances in 26 US-

based companies increased by

38.7 percentage points from

2011 to 2014, using 2011 UTB

balances as a baseline. Total

UTBs for all companies by 2014

was $12.3 billion. On an

individual company basis, the

average UTB was $472 million.

Figure 2 – Drivers of the ETR in the Chemicals sector in 2014

Figure 3 – UTB balances in the Chemicals sector

0.8%

0.3%

0.0%

0.0%

-0.3%

-1.0%

-2.8%

-2.8%

-3.0%

10

22

20

19

35

17

11

38

27

- 100 200 300

-3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0%

Change in tax rate








Tax incentives


100.0%

128.9% 125.9%138.7%

0%

20%

40%

60%

80%

100%

120%

140%

160%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2011 2012 2013 2014

Mil

lio

n $




that disclosed drivers increased

by 10 percent over the last year.



additions based on tax positions

related to the current year (CY),

which drove the overall increase.



business outside the United

States are required to account

for the tax effects (deferred tax

liability) associated with

remitting such earnings to the

United States, unless those

unremitted earnings are

permanently reinvested outside

the United States. The amount

of undistributed non-US


years. Twenty-six US-based



undistributed earnings from

their foreign subsidiaries on

which the parent company had

not recognized income tax.






before tax.

Figure 4 – Disclosure of the drivers of UTB in the Chemicals sector


21 20 22 17 19 12 2-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

Ad

ditio

ns for

tax

positio

ns o

f P

Y

Reductions for

tax

positio

ns o

f P

Y

Ad

ditio

ns b

ased o

n tax

positio

ns r

ela

ted

to C

Y

Se

ttle

ments

Reductions d

ue to

lapse o

f applic

able

sta

tute

of lim

itations

Fore

ign

curr

ency tra

nsla

tion

Ad

ditio

ns

from

acqu

isitio

ns

Mil

lio

n $

Number of companies

-400%

-300%

-200%

-100%

0%

100%

200%

300%

400%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26




Figure 6 shows the number of

tax years for 25 companies that

remain subject to examination

by US tax jurisdictions. The

majority of companies have

agreed years prior to 2011, but

one company still has 16 years

under negotiation with US tax


of open tax years was seven.

Figure 6 – Number of tax years that remain subject to examination in the Chemicals sector

16

11

10

9

8

7

6

5

4

3

2

1

5

1

2

1

1

2

2

8

1

1

-20 -15 -10 -5 0 5 10

1

2

3

4

5

6

7

8

9

10

11



Chemicals companies

Air Products & Chemicals, Inc.

Akzo Nobel N.V.

Albemarle Corp.

Arkema S.A.

Ashland, Inc.

BASF SE

Bayer AG

Celanese Corp.

CF Industries Holdings, Inc.

Chemtura Corp.

China Petroleum & Chemical Corp.

(The) Clorox Co.

Cytec Industries, Inc.

DIC Corp.

(The) Dow Chemical Co.

E. I. DuPont De Nemours & Co.

Eastman Chemical Co.

Ecolab, Inc.

Evonik Industries AG

ExxonMobil Corp.

Ferro Corp.

FMC Corp.

Huntsman Corp.

Innophos Holdings, Inc.

International Flavors & Fragrances, Inc.

Kuraray Co., Ltd.

L’Air Liquide S.A.

Lanxess AG

LG Chem Ltd.

Linde AG

Lyondellbasell Industries N.V.

Methanex Corp.

Mitsubishi Chemical Holdings Corp.

Mitsui Chemicals, Inc.

Monsanto Co.

(The) Mosaic Co.

Newmarket Corp.

NL Industries Inc.

Potash Corporation of

Saskatchewan Inc.

PPG Industries, Inc.

Praxair, Inc.

Reliance Industries Ltd.

Rockwood Holdings, Inc.

Royal DSM N.V.

Shin-Etsu Chemical Co., Ltd.

Sigma-Aldrich Corp.

Sinopec Shanghai Petrochemical Co., Ltd.

Solvay S.A.

Sumitomo Chemical Co., Ltd.

Syngenta Ltd.

Westlake Chemical Corp.


Engineering and Construction

Tax rate benchmarking for the Engineering and Construction (E&C) sector

The E&C sector has been

experiencing a recovery since

2012 as a result of improvement

in the US economy, following a

significant downturn from 2006

to 2011. The moderate but

sustained recovery is a result of a

stronger real estate market, lower

mortgage rates, and growing

overall consumer demand.

At the same time, E&C companies

have taken steps to improve

growth and productivity through

restructuring and acquisitions.

They have streamlined their

organizations, reduced costs and

expanded their business

portfolios. They have also driven

additional gains in construction

and asset efficiency to deliver

higher returns on invested capital.

Fifty E&C companies were

included in this year’s



year-ends, five companies with

September year-ends, and the


Data for four companies were not



in the study are listed at the end

of this section.




the E&C sector as a whole. The

ETRs in the upper quartile

remained fairly constant over the

three years compared to the ETRs

in the average, which showed a

steady increase over the same

period. This was a result of losses

sustained in the sector as

companies experienced challenges

following the economic crisis. In

2012, eight companies (17

percent) incurred losses and 12

companies (26 percent) had a tax

benefit, resulting in a range

between the quartiles of 21.0

percentage points. In 2014, four

companies (9 percent) had losses

and five companies (8 percent)

had a tax benefit.

Twelve companies in the study

saw a reduction in the ETR of

more than 10 percentage points

from 2013, and eleven companies

saw an increase of more than 10

percentage points.


With the data removed for

companies with a loss or tax

benefit in any of the three years,

the three-year average ETR for


percent. For these companies, the

maximum ETR in 2014 was 58.4

percent and the minimum was

6.9 percent.

ETR for US-based and non -US-based companies



average ETR of 24.0 percent.

More than half of these companies

had a loss or tax benefit in any of

the three years; for the 12

remaining companies, the three-

year average rate was 34.2

percent. For the 18 non-US-based

companies, the three-year average

ETR was 16.7 percent (28.8

percent for profitable companies).

Figure 1 – ETR for the E&C sector

34.8% 35.1% 35.1%

20.8%23.4%

25.0%

13.8%

18.8%

12.6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012 2013 2014



ETR for subsectors


subsectors: Building Materials &

Fixtures (13 companies), Heavy Construction (15 companies),

Home Construction

(10 companies) and other

(8 companies). Figure 2 shows

the ETR for each subsector.

Drivers of the ETR

Forty-four companies in the study

disclosed a reconciliation between

the statutory and effective tax

rates in their company accounts. For 24 companies, the ETR was

below the statutory rate, and for

20 companies, it was above.

The reconciling items as

disclosed in the statutory/

effective tax rate reconciliation

were analyzed, collated and

averaged for the sample.

Figure 3 shows how frequently the drivers appeared in




the left in the chart show the

number of companies reporting the driver. The 0 percent line





excluding single outlying distorting ratios.

The most common driver was the

impact of foreign operations; this

driver was reported by 38

companies. In contrast to the

other sectors studied in this report, this item increased the

ETR by 1.1 percentage points due

to the impact of state taxes. This

reconciling item was mainly

driven by the US-based

companies (27 companies), which had an unfavorable impact of 2.1

percentage points on the sector

average. However, the net impact

of foreign operations excluding

state taxes had a favorable impact

of 1.9 percentage points for all companies.

Figure 2 – ETR for E&C subsectors

Subsector Number of companies

3-year average ETR for all companies

Number of loss-making companies as a percentage

3-year average ETR for profitable companies

Building Materials & Fixtures

13 12.3% 62% 30.3%

Heavy Construction 15 28.9% 33% 29.6%

Home Construction 10 -68.8% 90% NA

Figure 3 – Drivers of the ETR in the E&C sector in 2014

3.0%

1.1%

0.6%

-0.1%

-0.4%

-1.9%

-2.1%

-2.6%

-3.6%

4

38

30

18

34

5

24

18

12

- 100 200 300

-7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0%

Change in tax rate







Tax incentives




The most favorable driver was the

impact of equity earnings,

reported by 12 companies, which

had an impact of 3.6 percentage

points. Under International

Financial Reporting Standards

(IFRS), a company presents its

share of the associate’s post-tax

profits and losses in the income

tax statement, but since there is

no associated tax charge, this is a

favorable reconciling item in the

statutory/effective tax

rate reconciliation.

Tax losses and change in

valuation allowance had a

favorable impact on the ETR as a

result of the losses in the sector.

This driver is a combination of

both favorable

and unfavorable items. Where

tax losses were incurred, but not

recognized in previous years and

then recognized in the current

year, the driver was favorable. By

contrast, if losses could not be

recognized, there was an

unfavorable driver. Overall, the

average favorable driver was 2.1

percentage points, reflecting that

more profitable companies were

able to recognize losses

in 2014.

Tax incentives were reported by

18 companies and decreased the

ETR by 2.6 percentage points. The

descriptions included tax benefits,

domestic manufacturing

deductions, R&D credits and

general business credits. The

benefit of tax incentives on the

ETR for 15 US-based companies

was 2.8 percentage points.









based companies decreased by

24.0 percentage points from 2011

to 2014, using 2011 UTB balances

as a baseline. Total

UTBs for all companies by 2014

was $1.0 billion. On an individual

company basis, the average UTB

was $36 million.

Figure 4 – UTB balances in the E&C sector

100.0%

84.0% 83.2%

76.0%

0%

20%

40%

60%

80%

100%

120%

0

200

400

600

800

1,000

1,200

1,400

2011 2012 2013 2014M

illi

on

$





by 8.6 percent over the past year.



reductions for tax positions of the

prior year (PY), which drove the

overall decrease.













years. Thirteen US-based




foreign subsidiaries for which the




multinationals that disclosed the

average movement of



before tax. The average increase in

unrepatriated foreign earnings

between 2013 and 2014 as a


before tax in 2014 was 52.3

percent. Two companies were

excluded from the data set due to

the distorting impact.

Figure 5 – Disclosure of the drivers of UTB in the E&C sector


17 13 22 12 15 2-400

-300

-200

-100

0

100

200

300

400

Ad

ditio

ns for

tax

positio

ns o

f P

Y

Reductions for

tax

positio

ns o

f P

Y

Ad

ditio

ns b

ased o

n tax

positio

ns r

ela

ted

to C

Y

Se

ttle

ments

Reductio

ns d

ue to

lapse o

f applic

able

sta

tute

of lim

itatio

ns

Ad

ditio

ns

from

acqu

isitio

ns

Mil

lio

n $

Number of companies

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

1 2 3 4 5 6 7 8 9 10 11









prior to 2010, but two companies

still have 11 years under



of open tax years was six.

Figure 7 – Number of tax years that remain subject to examination in the E&C sector

11

10

9

8

7

6

5

4

3

2

2

1

1

2

2

2

9

5

2

1

-20 -15 -10 -5 0 5 10

1

2

3

4

5

6

7

8

9

10



Engineering and Construction companies

Abertis Infraestructuras S.A.

ACS Actividades De Construccion y Servicios S.A.

AECOM Technology Corp.

Armstrong World Industries, Inc.

Balfour Beatty plc

Beacon Roofing Supply, Inc.

Bouygues S.A.

Bilfinger SE Bouygues S.A.

Builders FirstSource, Inc.

CEMEX, S.A.B. de C.V.

Chicago Bridge & Iron Co. N.V.

COLAS S.A.

CRH plc

D.R. Horton, Inc.

Dycom Industries, Inc.

EMCOR Group, Inc.

FERROVIAL, S.A.

Fluor Corp.

Granite Construction, Inc.

HeidelbergCement AG

Holcim Ltd.

Hovnanian Enterprises, Inc.

Hochtief AG

Hyundai Engineering Co., Ltd.

Jacobs Engineering Group, Inc.

James Hardie Industries SE

Joy Global, Inc.

KB Home

KBR, Inc.

Lafarge S.A.

Lennar Corp.

Martin Marietta Corp.

Meritage Homes Corp.

NCI Building Systems, Inc.

NVR, Inc.

Owens Corning Corp.

PulteGroup, Inc.

Quanta Services, Inc.

Ryland Group, Inc.

Samsung Engineering Co., Ltd.

Skanska AB

Standard Pacific Corp.

Tetra Tech, Inc.

Toll Brothers, Inc.

Toshiba-Westinghouse

Transurban Group

USG Corp.

VINCI

Vulcan Materials Co.

Willbros Group, Inc.


Industrial Manufacturing and Metals

Tax rate benchmarking for the Industrial Manufacturing and Metals (IM&M) sector

The industrial manufacturing

sector gathered strength in 2014.

Investments in more productive

and cost-efficient manufacturing

techniques, shorter product

cycles, quicker IT implementation

and faster customer response

served to enhance industry

performance. Greater mergers

and acquisitions activity led to

strategic acquisitions that also

strengthened the sector.

Moreover, earnings improved

with the increasing stability in

developed markets and the

combination of price increases

and decreases in the costs of

raw materials.

The picture for the mining sector

in 2014 was more challenging.

The sector was affected by

worldwide production capacity

and fluctuations in the market,

which led to volatility in the

demand for minerals and metals.

While the sector saw a slight

recovery in North America and

Europe, growth slowed in China.

Sixty-one industrial

manufacturing and metals

(IM&M) companies were included

in this year’s benchmarking study:

42 companies with December

year-ends, ten companies with

March year-ends, and the


Data for two companies were not




this section.




the IM&M sector as a whole. The

ETRs decreased from 2012 to

2013 and increased from 2013 to

2014. The number of companies

in this sector incurring losses was

reduced from six in 2013 to three

in 2014. The increase in ETR from

2013 to 2014 is partly a result of

the fall in losses and tax benefits.

Nine companies saw a reduction

in the ETR of more than 10

percentage points compared with

2012, and eight companies saw an


percentage points.



two companies were in a tax



tax benefit in any of the three

years removed, the three-year

average ETR for profitable

companies was 28.3 percent. For

these companies, the maximum

ETR in 2014 was 59.6 percent and

the minimum was 4.6 percent.




average ETR of almost 27.5

percent. For the 40

non-US-based companies,

the rate was 27.0 percent.

ETR for subsectors


subsectors: Industrial

Engineering and General

Industrials (35 companies),

Industrial Metals and Mining (14

companies), and other (10

companies). The three-year

average ETR for Industrial

Engineering and General

Industrial companies was 26.5

percent, and for Industrial Metals

& Mining companies, it was 30.0

percent, reflecting the impact of a

resource tax in the metals and

mining sector.

Figure 1 – ETR for the IM&M sector

34.1%31.1%

34.3%

27.4% 26.1%28.3%

22.8%20.2%

23.1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012 2013 2014



Drivers of the ETR in 2014

Fifty-one companies in the study

disclosed reconciliation between

the statutory and effective rates in

their company accounts. The

effective rate for 30 companies

was below the statutory rate, and

for 21 companies, it was above.

The reconciling items as disclosed

in the statutory/effective rate



the sample.














distorting ratios.

The most favorable driver was the

impact of foreign operations. It

was also the second most common

driver, reported by 45 companies.


decreased the ETR by 4.0

percentage points. This

reconciling item had a greater

impact for the 17 US-based

companies, reducing the ETR by

6.4 percentage points on average,

than it did for the 28 non US-

based companies, with an impact

of 2.5 percentage points.

Tax incentives had a favorable

impact of 2.3 percentage points on

the ETR for this sector. The

average impact on the ETR for 16

US-based companies was 1.4

percentage points, which was

lower than the impact of 3.3

percentage points for the 14

non-US-based companies.

Tax losses and changes in the

valuation allowance can be a

favorable driver when previously

unrecognized losses are used or

unfavorable when it appears

losses will not be used. In 2014,

this reconciling item increased the


Figure 2 – Drivers of the ETR in the IM&M sector in 2014

2.6%

2.3%

1.8%

1.5%

-1.5%

-1.7%

-2.3%

-4.0%

33

18

37

47

22

22

30

45

- 100 200 300

-7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0%

Tax losses and changes in valuation allowance

Change in tax rate





Tax incentives












based companies increased by 9.2

percentage points from 2011 to

2014, using 2011 UTB balances as

a baseline. Total UTBs for all

companies by 2014 was $9.1

billion. On an individual company

basis, the average UTB was

$609 million.



by 3.4 percent from the past year.



reductions for tax positions

related to the prior year (PY),

which drove the overall decrease.

Figure 3 – UTB balances in the IM&M sector

Figure 4 – Disclosure of the drivers of UTB in the IM&M sector

100.0% 105.3% 113.0% 109.2%

0%

20%

40%

60%

80%

100%

120%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2011 2012 2013 2014M

illi

on

$


14 13 15 10 11 5 2-1,500

-1,000

-500

0

500

1,000

1,500

Ad

ditio

ns for

tax

positio

ns o

f P

Y

Reductions for

tax

positio

ns o

f P

Y

Ad

ditio

ns b

ased o

n tax

positio

ns r

ela

ted

to C

Y

Se

ttle

ments

Reductions d

ue to

lapse o

f applic

able

sta

tute

of lim

itations

Fore

ign c

urr

ency tra

nsla

tion

Ad

ditio

ns fro

m a

cq

uis

itio

ns

Mil

lio

n $

Number of companies











outside the country. The amount

of undistributed non-US earnings

has grown in recent years. Sixteen

US-based multinationals

disclosed the cumulative amount

of undistributed earnings from





multinationals that disclosed the

average movement of



before tax.


-300%

-200%

-100%

0%

100%

200%

300%

400%

500%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16













of open tax years was seven.

Figure 6 – Number of tax years that remain subject to examination in the IM&M sector

18

11

10

9

8

7

6

5

4

3

2

1

2

1

1

1

1

1

5

3

2

1

-20 -15 -10 -5 0 5 10

1

2

3

4

5

6

7

8

9

10

11



International Manufacturing and Mining companies

3M Co.

ABB Ltd.

AB Volvo

Alcoa Inc.

Amcor Ltd.

Arcelormittal S.A.

Atlas Copco AB

Baoshan Iron & Steel Co., Ltd.

BHP Billiton plc

Bridgestone Corp.

Canon Inc.

Caterpillar Inc.

Cie De Saint-Gobain S.A.

Continental AG

Corning Inc.

Cummins Inc.

Danaher Corp.

Deere & Co.

E.ON AG

Eaton Corp.

Emerson Electric Co.

Evraz plc

Fanuc Corp.

General Electric Co.

Grupo Mexico SAB de CV

Honeywell Intl.

Hutchison Whampoa Ltd.

Illinois Tool Works, Inc.

Ingersoll-Rand Inc.

Itochu Corp.

Jardine Matheson Holdings Ltd.

Jardine Strategic Holdings Ltd.

Komatsu Ltd.

KONE Corp.

Larsen And Toubro Ltd.

Philips Electronics Larsen & Toubro Ltd.

MAN SE

Michelin S.C.A.

Mitsubishi Corp.

Mitsubishi Electric Corp.

Mitsubishi Heavy Industries, Ltd.

Mitsui & Co., Ltd.

Nippon Steel & Sumitomo Metal Corp.

Nucor Corp.

Outokumpu

PACCAR Inc.

Parker-Hannifin Corp.

POSCO

Rio Tinto plc

Sandvik

Schneider Electric S.A.

Siemens AG

Southern Copper Corp.

Sumitomo

TE Connectivity Ltd.

Tenaris S.A.

Timken

Tyco International Ltd.

ThyssenKrupp AG

US Steel Corp.

Vale S.A.


Transportation and Logistics

Tax rate benchmarking for the Transportation and Logistics (T&L) sector

In 2014, airline companies

experienced continuing economic

uncertainty, ongoing fuel price

volatility and increasing

competition. The airline industry

is one of the few sectors that has

seen prices fall (on an average fare

per passenger per kilometer basis)

in the past few years. Also, the

sector has been vulnerable to the

impacts of security breaches, acts

of nature such as volcanic

eruptions, and decreased travel

due to infectious diseases. During

2014, companies reportedly

focused on cost discipline, more

capital investment, expanding

network reach by adding new

destinations and increasing flight

frequency on existing routes.

Companies in the Logistics sector

continued to invest in

technologies to achieve key goals

such as higher productivity,

greater flexibility and improved

service levels. The sector has also

benefitted from a significant

increase in global trade for other

industries (i.e., healthcare, high

tech, e-commerce and retail),

resulting in higher profitability.

Shipping saw the use of new

technology coming online,

including ships powered by

natural gas. Older ships were

replaced by newer, more

fuel-efficient fleets with

fewer emissions.

Fifty T&L companies were

included in this year's



year-ends, seven companies

with March year-ends, and the


Data for five companies were not



in the study are listed at the end

of this section.




the T&L sector as a whole. While

ETRs of Quartile 3 and the

average maintained a stable level

from the past year, ETRs of

Quartile 1 showed a decrease from

2013 to 2014. The interquartile

range increased from 19.3

percentage points in 2013 to 22.4

in 2014, indicating an increase in

losses and tax benefits in this

sector in 2014.

Six companies in the study saw a

reduction in the ETR of more than

10 percentage points compared

with 2013, and six companies saw

an increase of more than 10

percentage points.



six companies were in a tax



tax benefit in any of the three

years removed, the three-year

average ETR for profitable

companies was 34.1 percent. The

maximum ETR in 2014 was

58.3 percent and the minimum

was 8.2 percent.




average ETR of 33.8 percent. For

the 22 non-US-based companies,

the rate was 25.5 percent, a

reflection of losses for these

companies; excluding loss making

companies, the ETR for non-

US-based companies was

30.0 percent.

Figure 1 – ETR for the T&L sector

38.5% 38.2% 37.9%

28.2%30.1% 29.8%

13.8%

18.9%

15.5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2012 2013 2014



ETR for subsectors

The following subsectors were

included: Industrial

Transportation (30 companies)

and Airlines (15 companies). The


Industrial Transportation

companies was 31.8 percent, and

for Airlines, it was 18.0 percent.

The three-year average ETR for

the eight profitable airline

companies was 34.6 percent.

Drivers of the ETR

Thirty-nine companies in the

study disclosed reconciliation

between the statutory and

effective rates in their company

accounts. For 14 companies, the

ETR was below the statutory rate,

and for 25 companies, it was

above. The reconciling items as

disclosed in the statutory/effective

rate reconciliation were analyzed,


the sample.












both favorable and unfavorable


distorting ratios.

The most common reconciling

item, reported by 35 companies,

was the impact of foreign

operations, which increased the

ETR by 1.2 percentage points. For

12 companies, this driver was a

favorable item, resulting from

cross-border transactions,

reducing the ETR by 0.8

percentage points. The ETRs of

21 US-based companies were

increased by 1.5 percentage points

due to the impact of

state taxes.

Tax incentives lowered the ETR

by 1.6 percentage points.

However, this reconciling item

was reported by only eight

companies. Tax reserve

adjustments were reported by six

companies, with an average

impact of -1.1 percentage points.

These adjustments were driven

mainly by net adjustments of

prior years and changes in prior-

year estimates.

Various other adjustments had an

unfavorable impact on the ETR of

1.7 percentage points, including

the descriptions of impact of

equity earnings, stock based

compensation, tax expense

resulting from allocations, and

other taxes.

Figure 2 – Drivers of the ETR in the T&L sector in 2014

1.7%

1.2%

0.6%

0.3%

0.0%

-1.1%

-1.6%

-1.9%

10

35

24

28

5

6

8

19

- 100 200 300

-7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0%





Change in tax rate


Tax incentives

Tax losses and changes in valuation allowance










that total UTB balances in 20

US-based companies decreased by

5.3 percentage points from

2011 to 2014, using 2011 UTB

balances as a baseline. Total UTBs

for all companies by 2014 was

$758 million. On an individual

company basis, the average UTB

was $40 million.


that disclosed drivers increased by

15.6 percent over the last year. As

indicated in Figure 4, the largest

movements were in additions

based on tax positions related to

the current year (CY), which drove

the overall increase.

Figure 3 – UTB balances in the T&L sector

Figure 4 – Disclosure of the drivers of UTB in the T&L sector

100.0%94.2%

81.9%94.7%

0%

20%

40%

60%

80%

100%

120%

0

100

200

300

400

500

600

700

800

900

2011 2012 2013 2014M

illi

on

$


11 10 13 8 11 1-200

-150

-100

-50

0

50

100

150

200

Ad

ditio

ns for

tax

positio

ns o

f P

Y

Reductions for

tax

positio

ns o

f P

Y

Ad

ditio

ns b

ased o

n tax

positio

ns r

ela

ted

to C

Y

Se

ttle

ments

Reductions d

ue to

lapse o

f applic

able

sta

tute

of lim

itations

Fore

ign c

urr

ency tra

nsla

tion

Mil

lio

n $

Number of companies











outside the country. The amount

of undistributed non-US earnings

has grown in recent years.

Eight US-based multinationals

disclosed the cumulative amount

of undistributed earnings from




Figure 5 shows the seven

US-based multinationals that

disclosed the average movement

of undistributed earnings as a


before tax. Data for one company

were excluded from the data set

due to the distorting impact.


0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

1 2 3 4 5 6 7













of open tax years was six.

Figure 6 – Number of tax years that remain subject to examination in the T&L sector

14

13

12

10

8

7

6

5

4

3

2

1

1

1

2

2

1

2

3

5

1

3

-20 -15 -10 -5 0 5 10

1

2

3

4

5

6

7

8

9

10

11



Transportation and Logistics companies

A.P. Moeller - Maersk A/S

Aeroports De Paris SA

Air Canada

Air France KLM SA

Air Methods Corp.

Alaska Air Group Inc.

All Nippon Airways Co., Ltd.

Atlas Air Worldwide Holdings Inc.

C.H. Robinson Worldwide Inc.

Canadian National Railway Co.

Canadian Pacific Railway Ltd.

Cathay Pacific Airways Ltd.

China Cosco Holdings Co., Ltd.

China Merchants Holdings (International) Co., Ltd.

China Shipping Container Lines Co., Ltd.

China Southern Airlines Co., Ltd.

Con-Way, Inc.

CSX Corp. Delta Air Lines, Inc.

Delta Air Lines, Inc.

Deutsche Lufthansa AG

Deutsche Post AG

Expeditors International of Washington Inc.

FedEx Corp.

Fraport Frankfurt Airport Services Worldwide AG

Genesee & Wyoming Inc.

J. B. Hunt Transport Services, Inc.

JetBlue Airways Corp.

Kansas City Southern

Kuehne & Nagel International AG

Landstar System, Inc.

Macquarie Infrastructure Co.

LLC MISC Bhd

Nippon Express Co., Ltd.

Nippon Yusen KK

Norfolk Southern Corp.

Overseas Shipholding Group, Inc.

Orient Overseas (International) Ltd.

Qantas Airways Ltd.

Ryanair Holdings plc

Ryder System, Inc.

Shanghai International Airport Co., Ltd.

Shanghai International Port (Group) Co., Ltd.

Singapore Airlines Ltd.

Southwest Airlines Co.

TNT Express N.V.

Union Pacific Corp.

United Continental Holdings Inc.

United Parcel Service, Inc.

US Airways Group Inc.

Yamato Holdings Co., Ltd.


Appendix

Source of information and analysis

Source of information

Our financial analysis was based

on ratios derived from publicly

available information. This

allowed for a large sample size of

320 companies without the need

to contact each company, giving

us a dependable overview from

which to draw our conclusions.

Companies in loss or tax benefit

positions often have distorted

ETRs. In a large data set, we trim

the ratios as described below. In a

small data set, such as the country

analysis, we calculate ETRs for

"profitable" companies, defined as

companies that have been

profitable and paid tax in each of

the last three years.

Statistical analysis

Trimmed average

Our conclusions are based on a

statistical analysis of the ratios. In

a tax benchmarking exercise of

this nature, particular ratios may

be distorted because of one-off,

nonrecurring items. Exceptional

items, for example, often attract

associated tax at rates far from the

statutory rate.

It was necessary to exclude these

extreme values, and this was done

consistently by taking a trimmed

average of a particular sample.

The trimmed average is the

average result of the data, derived

by excluding 15 percent of the

data points from both the top and

bottom of the data set. It is a

robust estimate of the location of

a sample, excluding outlying

data points.

Quartiles

These record the ratio where 75

percent (upper quartile) and 25

percent (lower quartile) of the

sample companies lie below these

points. By displaying results in

this manner, it is possible to

identify the range in which the

results of the majority of

companies fall.


Contacts

To have a deeper conversation about how these subjects may affect your business, please contact the following from PwC:

Michael W. Burak

US & Global Industrial Products

Tax Leader

+1.973.236.4459

[email protected]

Janet Kerr

Tax Rate Benchmarking/Tax

Transparency

+44.20.7804.7134

[email protected]

Duygu Turkoglu

Tax Rate Benchmarking

+44.20.7804.3634

[email protected]

Lauren Sparks

Tax Rate Benchmarking

+44.20.7804.1982

[email protected]

Jeffrey S. Lower

Principal, Tax Reporting

& Strategy

+1 313 394 3218

[email protected]

Roxanne Lackas

Director, Tax Reporting

& Strategy

+1 612 596 4857

[email protected]

Todd Bixby

Principal, Tax Reporting

& Strategy

+1 612 373 7143

[email protected]

Scott Penberthy

Managing Director & Technology

Transformation Leader

+1 646 471 5518

[email protected]

Amy Solek

US Automotive Industry Tax

Leader

+1.313.394.6767

[email protected]

Jamie B. Grow

US Aerospace & Defense Industry

Tax Leader

+1.703.918.3458

[email protected]

Sean Rutter

US Chemicals Industry Tax

Leader

+1.414.212.1777

[email protected]

Allen Pryor

US Engineering & Construction

Industry Tax Leader

+1.214.754.4570

[email protected]

Keith Rymer

US Industrial Manufacturing

Industry Tax Leader

+1.267.330.3481

[email protected]

Michael Tomera

US Metals Industry Tax Leader

+1. 412.355.6095

[email protected]

Michael J. Muldoon

US Transportation & Logistics

Industry Tax Leader

+1.904.366.3658

[email protected]

Brian Meighan

Partner, Washington National Tax

Services

+1.202.414.1790

[email protected]

Drew Lyon

Partner, National Economics and

Statistics

+1.202.414.3865

[email protected]

Andrew Prior

Managing Director, Legislative &

Regulatory Services

+1.202.414.4572

[email protected]

Phillip Galbreath

Director, Tax Knowledge

Management

+1.202.414.1496

[email protected]

For general inquiries, contact:

Diana Garsia

US Industrial Products Marketing

Senior Manager

+1.973.236.7624

[email protected]

Editorial contributor:

Gloria Gerstein

mailto:[email protected]




















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