Cisco 2013 Annual Report Download - page 69

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Provision for Income Taxes
Our provision for income taxes is subject to volatility and could be adversely impacted by earnings being lower than
anticipated in countries that have lower tax rates, higher than anticipated in countries that have higher tax rates, and expiration
of or lapses in tax incentives. Our provision for income taxes does not include provisions for U.S. income taxes and foreign
withholding taxes associated with the repatriation of undistributed earnings of certain foreign subsidiaries that we intend to
reinvest indefinitely in our foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends
or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we would be subject to
additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Further, as a
result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries
is subject to reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could
adversely impact our provision for income taxes.
Fiscal 2013 Compared with Fiscal 2012
The provision for income taxes resulted in an effective tax rate of 11.1% for fiscal 2013, compared with 20.8% for fiscal 2012.
The net 9.7 percentage point decrease in the effective tax rate between fiscal years was primarily attributable to a net tax
benefit of $794 million, or 7.1 percentage points, due to a tax settlement with the IRS and an increase in tax benefits of $144
million, or 1.2 percentage points, due to the retroactive reinstatement of the U.S. federal R&D tax credit in fiscal 2013.
For a full reconciliation of our effective tax rate to the U.S. federal statutory rate of 35% and for further explanation of our
provision for income taxes, see Note 15 to the Consolidated Financial Statements.
Fiscal 2012 Compared with Fiscal 2011
The provision for income taxes resulted in an effective tax rate of 20.8% for fiscal 2012, compared with 17.1% for fiscal 2011.
The net 3.7 percentage point increase in the effective tax rate between fiscal years was primarily attributable to a smaller
proportion of net income which was subject to foreign income tax rates that are lower than the U.S. federal statutory rate of
35% and the expiration of the U.S. federal R&D tax credit on December 31, 2011, partially offset by other items including a
reduction in state taxes.
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