Citrix 2012 Annual Report Download - page 52

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a cost method investment of $3.5 million. For more information see “— Liquidity and Capital Resources” and Note 4 to our
consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2012.
Income Taxes
We and certain of our subsidiaries are subject to U.S. federal income taxes, as well as income taxes of multiple state and
foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S., income tax
examinations by tax authorities for years prior to 2009.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain and
judgment is required in determining the worldwide provision for income taxes. We provide for income taxes on transactions
based on our estimate of the probable liability. We adjust our provision as appropriate for changes that impact our underlying
judgments. Changes that impact provision estimates include such items as jurisdictional interpretations on tax filing positions
based on the results of tax audits and general tax authority rulings. Due to the evolving nature of tax rules combined with the
large number of jurisdictions in which we operate, it is possible that our estimates of our tax liability and the realizability of our
deferred tax assets could change in the future, which may result in additional tax liabilities and adversely affect our results of
operations, financial condition and cash flows.
In June 2010, we reached a settlement in principle with the Internal Revenue Service, or IRS, regarding certain
previously disclosed income tax deficiencies asserted in a Revenue Agent’s Report, or the RAR, the terms of which were
approved in June 2012, or the Final Approval. Under the terms of the settlement, we agreed to an assessment of income tax
deficiencies in full settlement of all open claims under the RAR and resolved with finality for future years all of the transfer
pricing issues raised in the RAR. Based on this, we incurred a charge of $13.1 million in 2010 in accordance with the
authoritative guidance. In connection with the Final Approval, we finalized the tax deficiency calculations and formally closed
all of our open issues with the IRS relating to the 2004 and 2005 tax years. Because there were no changes from the agreement
reached in 2010, no additional amounts have been included in income tax expense during 2012.
Also, in June 2012, we closed our IRS examination for the 2006 through 2008 tax years. We recognized a net tax benefit
of $30.0 million in 2012 related to the closing of tax audits with the IRS for the 2006 through 2008 tax years, due to the
reduction of the liability for uncertain tax positions for the closed tax years.
We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of
preparing our consolidated financial statements. At December 31, 2012, we had approximately $59.3 million in net deferred tax
assets. The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the
weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We
review deferred tax assets periodically for recoverability and make estimates and judgments regarding the expected geographic
sources of taxable income and gains from investments, as well as tax planning strategies in assessing the need for a valuation
allowance. At December 31, 2012, we determined that $18.2 million valuation allowance relating to deferred tax assets for net
operating losses and tax credits was necessary. If the estimates and assumptions used in our determination change in the future,
we could be required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our
provisions for additional income taxes.
We maintain certain strategic management and operational activities in overseas subsidiaries and our foreign earnings are
taxed at rates that are generally lower than in the United States. We do not expect to remit earnings from our foreign
subsidiaries. Our effective tax rate was approximately 14.1% for the year ended December 31, 2012 and 17.4% for the year
ended December 31, 2011. The decrease in the effective tax rate when comparing the year ended December 31, 2012 to the
year ended December 31, 2011 was primarily due to the impact of the IRS settlement for the tax years 2006 through 2008,
partially offset by the expiration of the U.S. research and development tax credit for the 2012 tax year.
Our effective tax rate generally differs from the U.S. federal statutory rate of 35% due primarily to lower tax rates on
earnings generated by our foreign operations that are taxed primarily in Switzerland. We have not provided for U.S. taxes for
those earnings because we plan to reinvest all of those earnings indefinitely outside the United States. Our effective tax rate
will fluctuate based on the mix of earnings from our U.S. and foreign jurisdictions. Accordingly, earnings from the production
and distribution of our products and services through our foreign headquarters in Switzerland are currently taxed at lower
income tax rates than earnings from our U.S. operations.
The federal research and development credit expired on December 31, 2011. On January 2, 2013, the American Taxpayer
Relief Act of 2012 was signed into law. Under this act, the federal research and development credit was retroactively extended
for amounts paid or incurred after December 31, 2011 and before January 1, 2014. The effects of these changes in the tax law
will result in net tax benefits of approximately $9.4 million, which will be recognized in the first quarter of 2013, which is the
quarter in which the law was enacted.