Oracle 2012 Annual Report Download - page 36

We may have exposure to additional tax liabilities. As a multinational corporation, we are subject to income
taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. Significant
judgment is required in determining our worldwide provision for income taxes and other tax liabilities. We are
regularly under audit by tax authorities and those authorities often do not agree with positions taken by us on our
tax returns.
Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. For
example, certain U.S. government proposals for fundamental U.S. international tax reform, if enacted, could have
a significant adverse impact on our effective tax rate. Further, in the ordinary course of a global business, there
are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Our
intercompany transfer pricing is currently being reviewed by the U.S. Internal Revenue Service (IRS) and by
foreign tax jurisdictions and will likely be subject to additional audits in the future. We have negotiated certain
unilateral Advance Pricing Agreements with the IRS and certain selected bilateral Advance Pricing Agreements
that cover many of our intercompany transfer pricing issues and preclude the relevant tax authorities from
making a transfer pricing adjustment within the scope of these agreements. However, these agreements do not
cover substantial elements of our transfer pricing. In addition, our provision for income taxes could be adversely
affected by earnings being lower than anticipated in jurisdictions which we consider to be indefinitely reinvested
outside the United States that have lower statutory tax rates and earnings being higher than anticipated in
jurisdictions that have higher statutory tax rates.
We are also subject to non-income based taxes, such as payroll, sales, use, value-added, net worth, property and
goods and services taxes, in both the United States and various foreign jurisdictions. We are regularly under audit
by tax authorities with respect to these non-income based taxes and may have exposure to additional non-income
based tax liabilities. Our acquisition activities have increased our non-income based tax exposures, particularly
with our entry into the hardware systems business, which increased the volume and complexity of laws and
regulations that we are subject to and with which we must comply.
Although we believe that our income and non-income based tax estimates are reasonable, there is no assurance
that the final determination of tax audits or tax disputes will not be different from what is reflected in our
historical income tax provisions and accruals.
Charges to earnings resulting from acquisitions may adversely affect our operating results. Under business
combination accounting standards pursuant to ASC 805, Business Combinations, we recognize the identifiable
assets acquired, the liabilities assumed and any non-controlling interests in acquired companies generally at their
acquisition date fair values and, in each case, separately from goodwill. Goodwill as of the acquisition date is
measured as the excess amount of consideration transferred, which is also generally measured at fair value, and
the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. Our
estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain.
After we complete an acquisition, the following factors could result in material charges and adversely affect our
operating results and may adversely affect our cash flows:
• costs incurred to combine the operations of companies we acquire, such as transitional employee
expenses and employee retention, redeployment or relocation expenses;
• impairment of goodwill or intangible assets;
• amortization of intangible assets acquired;
• a reduction in the useful lives of intangible assets acquired;
• identification of or changes to assumed contingent liabilities, both income tax and non-income tax
related, after our final determination of the amounts for these contingencies or the conclusion of the
measurement period (generally up to one year from the acquisition date), whichever comes first;
• charges to our operating results to maintain certain duplicative pre-merger activities for an extended
period of time or to maintain these activities for a period of time that is longer than we had anticipated,
charges to eliminate certain duplicative pre-merger activities, and charges to restructure our operations
or to reduce our cost structure;
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