Symantec 2006 Annual Report Download - page 56

Provision for Income Taxes
Year Ended March 31,
2006 2005 2004
($ in thousands)
Tax provision on earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $227,068 $267,720 $171,603
Effective tax rate on earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 63% 31% 32%
Tax provision on repatriation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(21,197) $ 54,249 $ Ì
Total tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $205,871 $321,969 $171,603
Total effective tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57% 38% 32%
Our effective tax rate on income before taxes was approximately 57%, 38%, and 32% in fiscal 2006, 2005,
and 2004, respectively. The effective tax rate for fiscal 2006 reflects the impact of the IPR&D charges and
other acquisition-related charges that are nondeductible for tax reporting purposes, partially offset by foreign
earnings taxed at a lower rate than the U.S. tax rate, and the effect of the true-up of taxes on repatriated
earnings. The effective tax rate in fiscal 2005 reflects the additional tax expense attributable to the
$500 million of foreign earnings that we repatriated under the American Jobs Creation Act.
We believe realization of substantially all of our deferred tax assets as of March 31, 2006 of $467 million,
after application of the valuation allowance, is more likely than not based on the future reversal of temporary
tax differences. Realization of approximately $27 million of our deferred tax assets as of March 31, 2006 is
dependent upon future taxable earnings exclusive of reversing temporary differences in certain foreign
jurisdictions. Levels of future taxable income are subject to the various risks and uncertainties discussed in
Item 1A, Risk Factors, set forth in this annual report. An additional valuation allowance against net deferred
tax assets may be necessary if it is more likely than not that all or a portion of the net deferred tax assets will
not be realized. We will assess the need for an additional valuation allowance on a quarterly basis. The
valuation allowance on our deferred tax assets increased by $59 million in fiscal 2006, of which approximately
$58 million is attributable to acquisition-related assets, the benefit of which will reduce goodwill when and if
realized. The valuation allowance on our deferred tax assets increased by an immaterial amount in fiscal 2005.
American Jobs Creation Act of 2004 Ì Repatriation of foreign earnings
In the March 2005 quarter, we repatriated $500 million from certain of our foreign subsidiaries that
qualified for the 85% dividends received deduction under the provisions of the American Jobs Creation Act of
2004, or the Jobs Act, enacted in October 2004. We recorded a tax charge for this repatriation of $54 million
in the March 2005 quarter.
In May 2005, clarifying language was issued by the U.S. Department of Treasury and the IRS with
respect to the treatment of foreign taxes paid on the earnings repatriated under the Jobs Act and in September
2005, additional clarifying language was issued regarding the treatment of certain deductions attributable to
the earnings repatriation. As a result of this clarifying language, we reduced the tax expense attributable to the
repatriation by approximately $21 million in fiscal 2006, which reduced the cumulative tax charge on the
repatriation to $33 million.
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.
Other tax matters
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
50