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McKesson Corp. SEC Filing July 29, 2015 10-Q
Précis: In its Form 10-Q filed on July 29, 2015 McKesson Corp disclosed details of its settlement with CRA first disclosed in its Form 10-K filed May 12, 2015. The disclosure reads: “we reached an agreement to settle the transfer pricing matter for years 2003 through 2010 and recorded a discrete income tax benefit of $12 million for a previously unrecognized tax benefit.”
It is somewhat difficult to assess the terms of the settlement from this filing but the January 30, 2014 Form 10-Q of McKesson Corp quantified the assessments for 2003 to 2008 at $210 million. Subsequent filings used the figure $122 million.
While the underlying numbers may be more intricate than would appear from the 10-Q, in the absence of comment from McKesson or its counsel, on the face of things it would seem that the settlement reduced CRA’s original assessments somewhere in the 5-10% range. Thus notwithstanding the high drama associated with what is likely Canada’s most famous transfer pricing case it would appear that the drama was extinguished with a whimper, not a bang.
This will likely put CRA (at least in its own eyes, if not in fact) in the catbird seat for future transfer pricing cases that are wending their way to the courts.
[Portions of the various McKesson filings referred to above are reproduced below.]
July 29, 2015 10-Q
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6. Income Taxes
During the first quarters of 2016 and 2015, income tax expense related to continuing operations was $256 million and $185 million and included net discrete tax benefits of $5 million and $12 million. As of June 30, 2015, we had $497 million of unrecognized tax benefits, of which $337 million would reduce income tax expense and the effective tax rate, if recognized. During the next twelve months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could potentially reduce our unrecognized tax benefits by up to $131 million. However, this amount may change as we continue to have ongoing negotiations with various taxing authorities throughout the year.
We received reassessments from the Canada Revenue Agency (“CRA”) related to a transfer pricing matter impacting years 2003 through 2010, and filed Notices of Appeal to the Tax Court of Canada for all of these years. On December 13, 2013, the Tax Court of Canada dismissed our appeal of the 2003 reassessment and we filed a Notice of Appeal to the Federal Court of Appeal. During the first quarter of 2016, we reached an agreement to settle the transfer pricing matter for years 2003 through 2010 and recorded a discrete income tax benefit of $12 million for a previously unrecognized tax benefit.
MCKESSON CORP filed this 10-Q on 07/29/2015
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May 12, 2015 10-K
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6. Income Taxes
Our reported income tax rates were 30.7%, 34.9% and 30.1% in 2015, 2014 and 2013. Fluctuations in our reported income tax rates are primarily due to changes within our business mix, including varying proportions of income attributable to foreign countries that have lower income tax rates and discrete items. Income tax expense included net discrete tax benefits of $33 million in 2015, net discrete tax expenses of $94 million in 2014 and net discrete tax benefits of $29 million in 2013. Discrete tax expense for 2014 primarily related to a $122 million charge regarding an unfavorable decision from the Tax Court of Canada with respect to transfer pricing issues.
We have received reassessments from the Canada Revenue Agency (“CRA”) related to a transfer pricing matter impacting years 2003 through 2010, and have filed Notices of Appeal to the Tax Court of Canada for all of these years. On December 13, 2013, the Tax Court of Canada dismissed our appeal of the 2003 reassessment and we have filed a Notice of Appeal to the Federal Court of Appeal regarding this tax year. After the close of 2015, we reached an agreement in principle with the CRA to settle the transfer pricing matter for years 2003 through 2010. Since the agreement in principle did not occur within 2015, we have not reflected this potential settlement in our 2015 financial statements. We will record the final settlement amount in a subsequent quarter and do not expect it to have a material impact to income tax expense.
During 2015, we reached an agreement with the Internal Revenue Service (“IRS”) to settle all outstanding issues relating to years 2003 through 2006 and recognized discrete tax benefits of $55 million to record previously unrecognized tax benefits and related interest.
MCKESSON CORP filed this 10-K on 05/12/2015
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May 14, 2014 10-K
Our reported income tax rates were 35.4%, 30.1% and 27.2% in 2014, 2013 and 2012. Fluctuations in our reported income tax rates are primarily due to changes within our business mix, including varying proportions of income attributable to foreign countries that have lower income tax rates, and discrete items. Income tax expense included $94 million of net discrete tax expense in 2014, and $29 million and $66 million of net discrete tax benefit in 2013 and 2012. Discrete tax expense for 2014 primarily related to a $122 million charge regarding an unfavorable decision from the Tax Court of Canada with respect to transfer pricing issues. Included in the 2012 discrete tax benefit is a $31 million credit to income tax expense as a result of the reversal of an unrecognized tax benefit relating to our AWP litigation.
MCKESSON CORP filed this 10-K on 05/14/2014
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January 30, 2014 10-Q
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6. Income Taxes
As of December 31, 2013, we had $656 million of unrecognized tax benefits, of which $500 million would reduce income tax expense and the effective tax rate, if recognized. During the next twelve months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could potentially reduce our unrecognized tax benefits by up to $227 million. However, this amount may change because we continue to have ongoing negotiations with various taxing authorities throughout the year.
We have received reassessments from the Canada Revenue Agency (“CRA”) for a total of $210 million related to a transfer pricing matter impacting years 2003 through 2008. Payments of approximately $156 million of these reassessments have been made to the CRA to stop the accrual of interest. In prior years, we appealed the reassessment for 2003 to the Tax Court of Canada and filed a notice of objection for 2004 through 2008. On December 13, 2013, the Tax Court of Canada dismissed our appeal of the reassessment with respect to 2003. On January 10, 2014, we filed a Notice of Appeal to the Federal Court of Appeal from the judgment of the Tax Court of Canada. As a result of the unfavorable Tax Court Decision relating to 2003, we recognized a discrete tax charge of $122 million in the quarter, which includes tax and interest for the years 2003 through 2013. The ultimate resolution of these issues could result in an increase or decrease to income tax expense.
MCKESSON CORP filed this 10-Q on 01/30/2014
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