Salesforce.com 2016 Annual Report Download - page 119

A reconciliation of the beginning and ending balance of total unrecognized tax benefits for fiscal years
2016, 2015 and 2014 is as follows (in thousands):
Fiscal Year Ended January 31,
2016 2015 2014
Balance as of February 1, ............................... $146,188 $102,275 $ 75,144
Tax positions taken in prior period:
Gross increases ................................... 7,456 17,938 8,420
Gross decreases .................................. (7,264) (1,967) (4,466)
Tax positions taken in current period:
Gross increases ................................... 38,978 34,226 27,952
Settlements .......................................... (8,684) 0 0
Lapse of statute of limitations ........................... (781) (1,224) (5,205)
Currency translation effect .............................. (3,152) (5,060) 430
Balance as of January 31, ............................... $172,741 $146,188 $102,275
For fiscal 2016, 2015 and 2014 total unrecognized tax benefits in an amount of $56.2 million, $44.6 million
and $34.9 million, respectively, if recognized, would reduce income tax expense and the Company’s effective tax
rate after considering the impact of the change in valuation allowance in the U.S.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the income
tax provision. The Company accrued penalties and interest in the amount of $1.3 million, $1.3 million and
$0.6 million in income tax expense during fiscal 2016, 2015 and 2014, respectively. The balance in the non-
current income tax payable related to penalties and interest was $6.3 million, $4.6 million and $3.3 million as of
January 31, 2016, 2015 and 2014, respectively.
The Company has operations and taxable presence in multiple jurisdictions in the U.S. and outside of the
U.S. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax
jurisdictions around the world. The Company currently considers U.S. federal and state, Canada, Japan,
Australia, Germany, France and the United Kingdom to be major tax jurisdictions. The Company’s U.S. federal
and state tax returns since February 1999, which was the inception of the Company, remain open to examination.
With some exceptions, tax years prior to fiscal 2008 in jurisdictions outside of U.S. are generally closed.
However, in Japan and United Kingdom, the Company is no longer subject to examinations for years prior to
fiscal 2014 and fiscal 2011, respectively.
The Company is currently under audit by the U.S. Internal Revenue Service and California Franchise Tax
Board for fiscal 2011 to 2012 and fiscal 2009 to 2010, respectively. Additionally, examinations are conducted in
other international jurisdictions, including Switzerland and the United Kingdom. During fiscal 2016, the
Company completed examinations or effectively settled on tax positions with various taxing authorities and
accordingly, decreased unrecognized tax benefits by $8.7 million resulting from settlements. The Company
regularly evaluates its uncertain tax positions and the likelihood of outcomes from these tax examinations.
Significant judgment and estimates are necessary in the determination of income tax reserves. The Company
believes that it has provided adequate reserves for its income tax uncertainties. However, the outcome of the tax
audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a
manner inconsistent with management’s expectations, the Company could adjust its provision for income taxes
in the future. In the next twelve months, as some of these ongoing examinations are completed and tax positions
in these tax years meet the conditions of being effectively settled, the Company anticipates it is reasonably
possible that a decrease of unrecognized tax benefits up to approximately $15 million may occur.
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