Oracle 2008 Annual Report Download - page 42

Table of Contents
segregation of foreign and domestic earnings and expenses to avoid double taxation. Although we believe that
our estimates are reasonable, the final tax outcome of these matters could be different from that which is
reflected in our 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 or tax legislation that limits or restricts the amount of undistributed foreign earnings that we
consider indefinitely reinvested outside the United States 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 valuation allowance 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 account for our uncertain tax issues pursuant to FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (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. The first step is to determine 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, refinement of estimates or realization of
earnings or deductions that differ from our estimates. 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.
As a 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 period that 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.
As described in the “Business Combinations” section above, through fiscal 2009, income tax contingencies
that exist as of the acquisition date for an acquired company are evaluated quarterly and any changes are
recorded as adjustments to goodwill. For fiscal 2010, we will make our best estimate of income tax
contingencies that we
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Source: ORACLE CORP, 10-K, June 29, 2009 Powered by Morningstar® Document Research℠