INCOME TAXES
Our effective tax rate reflects the benefits of having significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35 percent. As a result of employment actions and capital investments made by the Company, certain tax jurisdictions provide income tax incentive grants, including Brazil, Costa Rica, Singapore and Swaziland. The terms of these grants expire from 2016 to 2023. We anticipate that we will be able to extend or renew the grants in these locations. In addition, our effective tax rate reflects the benefits of having significant earnings generated in investments accounted for under the equity method of accounting, which are generally taxed at rates lower than the U.S. statutory rate.
At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, our best estimate of operating results and foreign currency exchange rates. Based on current tax laws, the Company's estimated effective tax rate for 2016 is 22.5 percent. However, in arriving at this estimate we do not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.
On September 17, 2015, the Company received a Statutory Notice of Deficiency from the IRS for the tax years 2007 through 2009, after a five-year audit. Refer to Note 6.
The Company recorded income tax expense of $401 million (21.2 percent effective tax rate) and $415 million (20.9 percent effective tax rate) during the three months ended April 1, 2016 and April 3, 2015, respectively.
The following table illustrates the tax expense (benefit) associated with unusual and/or infrequent items for the interim periods presented (in millions):
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Three Months Ended |
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April 1, 2016 |
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April 3, 2015 |
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Productivity and reinvestment program |
$ |
(21 |
) |
1 |
$ |
(42 |
) |
1 |
Other productivity, integration and restructuring initiatives |
— |
|
2 |
— |
|
2 |
Transaction gains and losses |
(143 |
) |
3 |
(10 |
) |
4 |
Certain tax matters |
(6 |
) |
5 |
(16 |
) |
6 |
Other — net |
(1 |
) |
7 |
(130 |
) |
8 |
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1 |
Related to charges of $63 million and $90 million during the three months ended April 1, 2016 and April 3, 2015, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to Note 9 and Note 10.
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2 |
Related to charges of $199 million and $35 million during the three months ended April 1, 2016 and April 3, 2015, respectively. These charges were due to the integration of our German bottling operations. Refer to Note 9 and Note 10.
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3 |
Related to net charges of $397 million primarily related to $369 million of noncash losses due to the refranchising of certain territories in North America and $45 million related to costs incurred to refranchise our North America bottling territories, partially offset by an $18 million gain, net of transaction costs, related to the disposal of our investment in Keurig. Refer to Note 2 and Note 9.
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4 |
Related to charges of $46 million that consisted of $21 million of charges due to the refranchising of certain territories in North America, a $6 million additional charge related to the sale of a portion of our equity investment in a Brazilian bottling entity and a $19 million charge related to the remeasurement of our equity interest in a South African bottler to fair value. Refer to Note 2 and Note 9.
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5 |
Primarily related to amounts required to be recorded as a result of a tax rate change in Japan and for changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant. |
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6 |
Primarily related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant. |
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7 |
Related to charges of $6 million that consisted of $3 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees and $3 million due to tax litigation expense and costs associated with restructuring and transitioning the Company's Russian juice operations to an existing joint venture with an unconsolidated bottling partner. Refer to Note 9.
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8 |
Related to charges of $528 million that consisted of $320 million associated with the early extinguishment of long-term debt, $27 million due to the remeasurement of the net monetary assets of our Venezeulan subsidiary into U.S. dollars using the SIMADI exchange rate, $108 million due to the write-down we recorded related to receivables from our bottling partner in Venezuela and an impairment of a Venezuelan trademark, and $73 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 1 and Note 9.
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The Company evaluates the recoverability of our deferred tax assets in accordance with U.S. GAAP. We perform our recoverability tests on a quarterly basis, or more frequently, to determine whether it is more likely than not that any of our deferred tax assets will not be realized within their life cycle based on the available evidence. The Company's deferred tax valuation allowances are primarily a result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards from operations in various jurisdictions.