Oracle 2015 Annual Report Download - page 56

Table of Contents
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, historical earnings, taxable income in prior years, if carryback is
permitted under the law 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, or goodwill would be adjusted at our final determination of the valuation allowance related to an
acquisition within the measurement period. 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 as an adjustment to earnings at such time.
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. A description of our accounting policies associated with tax related contingencies
assumed as a part of a business combination is provided under “Business Combinations” above. For those tax related contingencies that are not a part of a business
combination, we account for these uncertain tax issues pursuant to ASC 740, IncomeTaxes, 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 in an 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 that 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, judicial rulings, and 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 generally 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.
In addition, as a part of our accounting for business combinations, intangible assets are recognized at fair values and goodwill is measured as the excess of
consideration transferred over the net estimated fair values of assets acquired. 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 accounting for business combinations. 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.
Legal and Other Contingencies
We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant matter and assess our potential financial
exposure. A description of our accounting policies associated with contingencies assumed as a part of a business combination is provided under “Business
Combinations” above. For legal and other contingencies that are not a part of a business combination, we accrue a liability for an estimated loss if the potential loss
from any claim or legal proceeding is considered probable, and the amount can be reasonably estimated. Significant judgment is required in both the determination
of probability and the determination as to whether the amount of an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are
based only on the best information available at the time the accruals are made. As
54