VMware 2015 Annual Report Download - page 41

TableofContents
taxjurisdictionstotheU.S.,areductioninthebenefitfromthefederalresearchtaxcreditandthenetincreaseinunrecognizedtaxbenefits.Oureffectivetaxratein
2014washigherthan2013primarilybecausethe2013effectivetaxrateincludedthebenefitofthefederalresearchtaxcreditforboth2013and2012,whereasthe
2014effectivetaxrateonlyincludedthebenefitofthefederalresearchtaxcreditfor2014.
Ourrateoftaxationinnon-U.S.jurisdictionsislowerthanourU.S.taxrate.Ournon-U.S.earningsareprimarilyearnedbyoursubsidiariesorganizedin
Ireland,andassuch,ourannualeffectivetaxratecanbesignificantlyimpactedbythecompositionofourearningsintheU.S.andnon-U.S.jurisdictions.
Allincomeearnedabroad,exceptforpreviouslytaxedincomeforU.S.taxpurposes,isconsideredindefinitelyreinvestedinournon-U.S.operationsandno
provisionforU.S.taxeshasbeenprovidedwithrespecttosuchincome.AsofDecember31,2015and2014,theundistributedearningsofournon-U.S.
subsidiarieswereapproximately$4,473millionand$3,594million,respectively.Ourintentistoindefinitelyreinvestournon-U.S.fundsinourforeign
operations,andourcurrentplansdonotdemonstrateaneedtorepatriatethemtofundourU.S.operations.Atthistime,itisnotpracticabletoestimatetheamount
oftaxthatmaybepayableifweweretorepatriatetheseearnings.
WeareincludedintheEMCconsolidatedgroupforU.S.federalincometaxpurposes,andexpecttocontinuetobeincludedinsuchconsolidatedgroupfor
periodsinwhichEMCownsatleast80%ofthetotalvotingpowerandvalueofourcombinedoutstandingClassAandClassBcommonstockascalculatedfor
U.S.federalincometaxpurposes.ThepercentageofvotingpowerandvaluecalculatedforU.S.federalincometaxpurposesmaydifferfromthepercentageof
outstandingshares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ourresultsareincludedintheEMCconsolidatedreturnforU.S.federalincometaxpurposes,our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.
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iscurrentlyauditingtheEMCconsolidatedgroup'sfederaltaxreturnsfortaxyears2009through2011.Inaddition,weareunder
corporateincometaxauditsinvariousstatesandnon-U.S.jurisdictions.
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,2015,EMCowned43millionsharesofClassAcommonstockandall300millionsharesofClassBcommonstock,representing81.3%
ofourtotaloutstandingsharesofcommonstockand97.5%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”).
EMCacquiredthecontrollinginterestinVCECompanyLLC(“VCE”)duringthefourthquarterof2014.TransactionswithVCEfromthedateEMCacquired
VCEhavebeenincludedinthetablesbelow.
Transactions with EMC
WeandEMCengagedinthefollowingongoingintercompanytransactions,whichresultedinrevenuesandreceiptsandunearnedrevenuesforus:
• 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provideprofessionalservicestoendusersbasedupon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.
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