Symantec 2011 Annual Report Download - page 113

Provision for income taxes
2011 2010 2009
Fiscal
($ in millions)
Provision for income taxes ..................................... $105 $112 $183
Effective tax rate on earnings ................................... 14% 13% (3)%
Our effective tax rate was approximately 14%, 13%, and (3)% in fiscal 2011, fiscal 2010, and 2009,
respectively.
The tax expense in fiscal 2011 was reduced by the following benefits: (1) $49 million arising from the Veritas v
Commissioner Tax Court decision further discussed below, (2) $15 million from the reduction of our valuation
allowance for certain deferred tax assets, and (3) $21 million tax benefit from lapses of statutes of limitation, and
(4) $7 million tax benefit from the conclusion of U.S. and foreign audits.
The tax expense in fiscal 2010 was significantly reduced by the following benefits: (1) $79 million tax benefit
arising from the Veritas v. Commissioner Tax Court decision, (2) $11 million tax benefit from the reduction of our
valuation allowance for certain deferred tax assets, (3) $17 million tax benefit from lapses of statutes of limitation,
(4) $9 million tax benefit from the conclusion of U.S. and foreign audits, (5) $7 million tax benefit to adjust taxes
provided in prior periods, and (6) $6 million tax benefit from current year discrete events. The change in the
valuation allowance follows discussions with Irish Revenue in the third quarter of fiscal 2010, the result of which
accelerates the timing of the use of certain Irish tax loss carryforwards in the future. The tax expense in fiscal 2009
was materially impacted by the inclusion of a $56 million tax benefit associated with the $7.0 billion impairment of
goodwill in the third quarter of fiscal 2009.
The effective tax rates for all periods presented otherwise reflects the benefits of lower-taxed foreign earnings
and losses from our joint venture with Huawei Technologies Co., Limited, domestic manufacturing incentives, and
research and development credits, partially offset by state income taxes. Substantially all of the foreign earnings
were generated by subsidiaries in Ireland and Singapore.
As a result of the impairment of goodwill in fiscal 2009, we have cumulative pre-tax book losses, as measured
by the current and prior two years. We considered the negative evidence of this cumulative pre-tax book loss
position on our ability to continue to recognize deferred tax assets that are dependent upon future taxable income for
realization. Levels of future taxable income are subject to the various risks and uncertainties discussed in Part I,
Item 1A, Risk Factors, set forth in this annual report. We considered the following as positive evidences: the vast
majority of the goodwill impairment is not deductible for tax purposes and thus will not result in tax losses; we have
a strong, consistent taxpaying history; we have substantial U.S. federal income tax carryback potential; and we have
substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities.
We have concluded that these positive evidences outweigh the negative evidence and, thus, that the deferred tax
assets as of April 1, 2011of $536 million, after application of the valuation allowances, are realizable on a “more
likely than not” basis.
On March 29, 2006, we received a Notice of Deficiency from the IRS claiming that we owe $867 million of
additional taxes, excluding interest and penalties, for the 2000 and 2001 tax years based on an audit of Veritas. On
June 26, 2006, we filed a petition with the U.S. Tax Court, Veritas v Commissioner, protesting the IRS claim for
such additional taxes. During July 2008, we completed the trial phase of the Tax Court case, which dealt with the
remaining issue covered in the assessment. At trial, the IRS changed its position with respect to this remaining issue,
which decreased the remaining amount at issue from $832 million to $545 million, excluding interest.
On December 10, 2009, the U.S. Tax Court issued its opinion, finding that our transfer pricing methodology,
with appropriate adjustments, was the best method for assessing the value of the transaction at issue between Veritas
and its offshore subsidiary. The Tax Court judge provided guidance as to how adjustments would be made to correct
the application of the method used by Veritas. We remeasured and decreased our liability for unrecognized tax
benefits accordingly, resulting in a $79 million tax benefit in the third quarter of fiscal 2010. In June 2010, we
reached an agreement with the IRS concerning the amount of the adjustment related to the U.S. Tax Court decision.
As a result of the agreement, we further reduced our liability for unrecognized tax benefits, resulting in an additional
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