8-KOther EventsExhibits & Filings

ILLINOIS TOOL WORKS INC 8-K Report, Corporate Update (Feb 8, 2011)

Filed February 8, 2011For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) has reported a significant development regarding a tax dispute with the Australian Tax Office (ATO). The dispute, concerning the tax treatment of an intercompany financing transaction, has been ongoing since 2010 and involved income tax years from 2002 through 2007. ITW has received a favorable ruling from the Federal Court of Australia on February 4, 2011, regarding a substantial portion of its claimed income tax deductions for the earlier years. While the court's decision is largely in ITW's favor, the final financial impact and the exact reduction in unrecognized tax benefits and tax expense will not be determined until the court issues its final order, expected by the end of the first quarter. Investors should note that the ATO retains the right to appeal the decision within 21 days of the final order. This positive resolution, pending finalization, suggests a potential reduction in future tax liabilities for ITW.

Key Highlights

  • 1ITW has received a favorable ruling from the Federal Court of Australia concerning a significant tax dispute with the Australian Tax Office.
  • 2The dispute involved the tax treatment of intercompany financing transactions and claimed income tax deductions for the years 2002-2005, with a deferred appeal for 2006-2007.
  • 3The court's decision on February 4, 2011, was in ITW's favor regarding a significant portion of claimed income tax deductions.
  • 4The company expects to decrease its unrecognized tax benefits and tax expense related to income tax years 2003 through 2010 as a result of this ruling.
  • 5The exact financial impact will be determined once the Court issues its final order, expected before the end of ITW's first quarter.
  • 6The Australian Tax Office has a 21-day window to appeal the court's decision after the final order is issued.

Frequently Asked Questions

ITW is in a dispute with the Australian Tax Office (ATO) over the tax treatment of an intercompany financing transaction between the U.S. and Australia. The ATO had disallowed income tax deductions for ITW for income tax years 2002 through 2005 and assessed withholding taxes for 2003.

On February 4, 2011, the Federal Court of Australia ruled in ITW's favor regarding a significant portion of the disputed income tax deductions. However, the court directed the parties to submit orders to implement the rulings, and a final order is still pending.

Based on the court's decision, ITW expects to decrease its unrecognized tax benefits and reduce tax expense related to income tax years 2003 through 2010. The precise financial amounts will be confirmed after the Court issues its final order, which is anticipated before the end of the company's first quarter.

No, the ATO has 21 days from the date the Court issues its final order to appeal the decision. Therefore, the finality of the ruling is subject to this appeal period.