VMware 2014 Annual Report Download - page 52

Table of Contents
beneficially owned by EMC due to the greater voting power of our Class B common stock as compared to our Class A common stock and other
factors. Each member of a consolidated group during any part of a consolidated return year is jointly and severally liable for tax on the
consolidated return of such year and for any subsequently determined deficiency thereon. Should EMC’s ownership fall below 80% of the total
voting power or value of our outstanding stock in any period, then we would no longer be included in the EMC consolidated group for U.S.
federal income tax purposes, and our U.S. federal income tax would be reported separately from that of the EMC consolidated group.
Although we file a consolidated federal tax return with EMC, the income tax provision is calculated primarily as though we were a separate
taxpayer. However, certain transactions that we and EMC are parties to are assessed using consolidated tax return rules. Our effective tax rate in
the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The rate
at which the provision for income taxes is calculated differs from the U.S. federal statutory income tax rate primarily due to different tax rates in
foreign jurisdictions where income is earned.
The EMC consolidated group is routinely under audit by the Internal Revenue Service (the “IRS”).
All U.S. federal income tax matters have
been concluded for years through 2008. The IRS commenced a federal income tax audit for the tax years 2009 and 2010 in the third quarter of
2012. The current federal income tax audit is ongoing, and it is not expected to be completed until 2015.
We also have income tax audits in progress in numerous state and local jurisdictions. In our international jurisdictions that comprise a
significant portion of our operations, the years that may be examined vary, with the earliest year being 2008. In our most significant international
jurisdiction, Ireland, the open tax years begin as of 2010. Based on the timing and outcome of examinations of our international subsidiaries, the
result of the expiration of statutes of limitations for specific jurisdictions or the timing and result of ruling requests from taxing authorities, it is
reasonably possible that within the next 12 months total unrecognized tax benefits could be potentially reduced by approximately $14 . Audit
outcomes and the timing of audit settlements are subject to significant uncertainty.
Our future effective tax rate may be affected by such factors as changes in tax laws, changes in our business, regulations, or rates, changing
interpretation of existing laws or regulations, the impact of accounting for stock-based compensation, the impact of accounting for business
combinations and shifts in the amount of earnings in the U.S. compared with other regions in the world as well as the expiration of statute of
limitations and settlements of audits.
Our Relationship with EMC
As of December 31, 2014 , EMC owned 43,025,000 shares of Class A common stock and all 300,000,000 shares of Class B common stock,
representing 79.9% of our total outstanding shares of common stock and 97.2%
of the combined voting power of our outstanding common stock.
The information provided below includes a summary of the transactions entered into with EMC and EMC’s consolidated subsidiaries
(collectively “EMC”), including VCE Company LLC (“VCE”) from the date EMC acquired its controlling interest in VCE through December
31, 2014.
Transactions with EMC
We and EMC engage in the following ongoing intercompany transactions, which resulted in revenues and receipts and unearned revenues
for us:
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• Pursuant to an ongoing reseller arrangement with EMC, EMC bundles our products and services with EMC’
s products and sells them to
end users.
•
EMC purchases products and services from us for internal use.
•
We recognize revenues for professional services based upon such contractual agreements with EMC.
• From time to time, we and EMC enter into agreements to collaborate on technology projects, and EMC pays us for services that we
provide to EMC in connection with such projects.
• Pursuant to an ongoing distribution agreement, we act as the selling agent for certain products and services in exchange for a customary
agency fee.
• We recognize revenues for various transition services provided to Pivotal. Support costs incurred by us are reimbursed to us and are
recorded as a reduction to the costs incurred by us.