Symantec 2006 Annual Report Download - page 112

SYMANTEC CORPORATION
Notes to Consolidated Financial Statements Ì (Continued)
The $500 million repatriation under the Jobs Act was deemed to be distributed entirely from foreign
earnings that had been previously treated as indefinitely reinvested. However, this distribution from previously
indefinitely reinvested earnings does not change our position going forward that future earnings of certain of
our foreign subsidiaries will be indefinitely reinvested.
On March 29, 2006, we received a Notice of Deficiency from the IRS claiming that we owe additional
taxes, plus interest and penalties, for the 2000 and 2001 tax years based on an audit of Veritas, which we
acquired in July 2005. The incremental tax liability asserted by the IRS with regard to the Veritas claim is
$867 million, excluding penalties and interest. The Notice of Deficiency primarily relates to transfer pricing in
connection with a technology license agreement between Veritas and a foreign subsidiary. We do not agree
with the IRS position and we intend to file a timely petition to the Tax Court to protest the assessment. No
payments will be made on the assessment until the issue is definitively resolved. If, upon resolution, we are
required to pay an amount in excess of our provision for this matter, the incremental amounts due would be
accounted for principally as additions to the cost of Veritas purchase price. Any incremental interest accrued
subsequent to the date of the Veritas acquisition would be recorded as an expense in the period the matter is
resolved.
In the fourth quarter of fiscal 2006, we made $90 million of tax-related adjustments to the purchase
accounting for Veritas, consisting of $120 million of additional pre-acquisition tax reserve-related adjustments,
partially offset by a $30 million reduction in other pre-acquisition taxes payable. While we strongly disagree
with the IRS over both its transfer pricing methodologies and the amount of the assessment, we have
established additional tax reserves for all Veritas pre-acquisition years to account for both contingent tax and
interest risk.
On March 30, 2006, we received notices of proposed adjustment from the IRS with regard to an
unrelated audit of Symantec for fiscal years 2003 and 2004. The IRS claimed that we owed an incremental tax
liability with regard to this audit of $110 million, excluding penalties and interest. The incremental tax liability
primarily relates to transfer pricing matters between Symantec and a foreign subsidiary. For information
related to a proposed settlement of this IRS claim, see Note 17.
In the fourth quarter of fiscal 2006, we increased our tax reserves by an additional $64 million in
connection with all open Symantec tax years (fiscal 2003 to 2006). Since these reserves relate to licensing
arising from acquired technology, the additional accruals are primarily offset by deferred taxes.
We are as yet unable to confirm our eligibility to claim a lower tax rate on a distribution made from a
Veritas foreign subsidiary prior to the acquisition. The distribution was intended to be made pursuant to the
Jobs Act, and therefore eligible for a 5.25% effective U.S. federal rate of tax, in lieu of the 35% statutory rate.
We are seeking a ruling from the IRS on the matter. Because we were unable to obtain this ruling prior to
filing the Veritas tax return in May 2006, we have paid $130 million of additional U.S. taxes. Since this
payment relates to the taxability of foreign earnings that are otherwise the subject of the IRS assessment, this
additional payment reduced the amount of taxes payable accrued as part of the purchase accounting for pre-
acquisition contingent tax risks.
Note 14. Litigation
As described more fully in Note 13 above, we intend to file a petition with the U.S. Tax Court prior to the
end of June 2006, protesting an IRS claim for incremental taxes of $867 million relating to transfer pricing in
connection with a technology license agreement between Veritas and a foreign subsidiary.
Since the September quarter of 2002, Veritas has received subpoenas issued by the Securities and
Exchange Commission, or SEC, in the investigation entitled In the Matter of AOL/Time Warner. The SEC
has requested information regarding transactions with AOL Time Warner, or AOL, and related accounting
and disclosure matters. Veritas' transactions with AOL, entered into in September 2000, involved a software
and services purchase by AOL at a stated value of $50 million and the purchase by Veritas of advertising
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