Coca-Cola Co. (KO) | Analysis of Income Taxes

Income Tax Accounting Policy

Income tax expense includes United States, state, local and international income taxes, plus a provision for U.S. taxes on undistributed earnings of foreign subsidiaries not deemed to be indefinitely reinvested. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting basis and the tax basis of existing assets and liabilities. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax rate for the year and manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. Coca-Cola records taxes that are collected from customers and remitted to governmental authorities on a net basis in consolidated statements of income.

Coca-Cola is involved in various tax matters, with respect to some of which the outcome is uncertain. Coca-Cola establishes reserves to remove some or all of the tax benefit of any of tax positions at the time Coca-Cola determines that it becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained, (2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) Coca-Cola presumes the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the "more likely than not" recognition threshold would be recognized in Coca-Cola's income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is "more likely than not" to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired.

Source: Coca-Cola Co., Annual Report

Income Tax Expense (Benefit)

Coca-Cola Co., income tax expense (benefit), continuing operations

Source: Based on data from Coca-Cola Co. Annual Reports

Item	Description	The company
Current	The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations.	Coca-Cola Co.'s current increased from 2009 to 2010 and from 2010 to 2011.
Deferred	The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations.	Coca-Cola Co.'s deferred increased from 2009 to 2010 and from 2010 to 2011.
Income tax expense (benefit)	The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy.	Coca-Cola Co.'s income tax expense (benefit) increased from 2009 to 2010 and from 2010 to 2011.

Effective Income Tax Rate (EITR)

Coca-Cola Co., effective income tax rate (EITR) reconciliation

Source: Based on data from Coca-Cola Co. Annual Reports

Item	Description	The company
Effective tax rates	A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations.	Coca-Cola Co.'s effective tax rates declined from 2009 to 2010 but then increased from 2010 to 2011 exceeding 2009 level.

Deferred Tax Assets (Liabilities), Net

Coca-Cola Co., deferred tax assets (liabilities), net

Source: Based on data from Coca-Cola Co. Annual Reports

Item	Description	The company
Gross deferred tax assets	The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies.	Coca-Cola Co.'s gross deferred tax assets increased from 2009 to 2010 but then slightly declined from 2010 to 2011.
Deferred tax assets	The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value.	Coca-Cola Co.'s deferred tax assets increased from 2009 to 2010 but then slightly declined from 2010 to 2011.
Net deferred tax assets (liabilities)	For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods.	Coca-Cola Co.'s net deferred tax assets (liabilities) declined from 2009 to 2010 and from 2010 to 2011.