Oracle 2007 Annual Report Download - page 38

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historical income tax provisions and accruals. Such differences could have a material effect on our income tax
provision and net income in the period in which such determination is made.
Our effective tax rate includes the impact of certain undistributed foreign earnings for which no U.S. taxes have been
provided because such earnings are planned to be indefinitely reinvested outside the United States. Remittances of
foreign earnings to the U.S. are planned based on projected cash flow, working capital and investment needs of our
foreign and domestic operations. Based on these assumptions, we estimate the amount that will be distributed to the
U.S. and provide U.S. federal taxes on these amounts. Material changes in our estimates could impact our effective
tax rate.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be
realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in
those jurisdictions where the deferred tax assets are located. We consider future growth, forecasted earnings, future
taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning
strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be
able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be
charged to earnings in the period in which we make such a determination. Likewise, if we later determine that it is
more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the
previously provided valuation allowance.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the
actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are
generally recorded in the period when the tax returns are filed and the global tax implications are known, which can
materially impact our effective tax rate.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which
often result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly
judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these
matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities
in the period the assessments are made or resolved, audits are closed or when statutes of limitation on potential
assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from
our current estimates. As a result, our effective tax rate may fluctuate significantly on a quarterly basis.
As part of our accounting for business combinations, some of the purchase price is allocated to goodwill and
intangible assets. Impairment charges associated with goodwill are generally not tax deductible and will result in an
increased effective income tax rate in the quarter any impairment is recorded. Amortization expenses associated with
acquired intangible assets are generally not tax deductible pursuant to our existing tax structure; however, deferred
taxes have been recorded for non-deductible amortization expenses as a part of the purchase price allocation process.
We have taken into account the allocation of these identified intangibles among different taxing jurisdictions,
including those with nominal or zero percent tax rates, in establishing the related deferred tax liabilities. Income tax
contingencies existing as of the acquisition dates of the acquired companies are evaluated quarterly and any
adjustments are recorded as adjustments to goodwill.
On June 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48), which contains a two-step approach to recognizing and
measuring uncertain tax positions taken or expected to be taken in a tax return by determining if the weight of
available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including
resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe we have
adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of
these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the
closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is
different than the amounts recorded, such differences will impact our provision for income taxes in the period in
which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and
changes to reserves that are considered appropriate and also include the related interest and penalties.
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Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Research℠