VMware 2015 Annual Report Download - page 80

TableofContents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
supportstherealizationofthedeferredtaxassetsrelatedtotheseitems,thevaluationallowancewillbereversedandataxbenefitwillberecordedaccordingly.
VMwarebelievesitismore-likely-than-notthatthenetdeferredtaxassetsasofDecember31,2015and2014,willberealizedintheforeseeablefutureas
VMwarebelievesthatitwillgeneratesufficienttaxableincomeinfutureyears.VMware'sabilitytogeneratesufficienttaxableincomeinfutureyearsinthe
appropriatetaxjurisdictionswilldeterminetheamountofnetdeferredtaxassetbalancestoberealizedinfutureperiods.DuringtheyearendedDecember31,2015
,thetotalchangeinthevaluationallowancewas$38million.TheincreaseinthevaluationallowancewasprimarilyduetotheCaliforniaR&Dcreditsandcapital
lossesgeneratedinthecurrentyear.DuringtheyearendedDecember31,2014,thetotalchangeinthevaluationallowancewas$12million.Theincreasewas
primarilyduetotheCaliforniaR&Dcreditsgeneratedin2014offsetbythecapitallossesutilizedin2014.
U.S.incometaxeshavenotbeenprovidedoncertainundistributedearningsofnon-U.S.subsidiariesofapproximately$4,473millionand$3,594millionat
December31,2015and2014,respectively,becausesuchearningsareconsideredtobereinvestedindefinitelyoutsideoftheU.S.,orwillberemittedsubstantially
freeofadditionaltax.VMware’srateoftaxationinnon-U.S.jurisdictionsislowerthantheU.S.taxrate.VMware’sinternationalincomeisprimarilyearnedby
VMware’ssubsidiariesinIreland,wherethestatutorytaxrateis12.5%.Recentdevelopmentsinnon-U.S.taxjurisdictionsandunfavorablechangesinnon-U.S.
taxlawsandregulationscouldhaveanadverseeffectonVMware’sannualeffectivetaxrate.Allincomeearnedabroad,exceptforpreviouslytaxedincomefor
U.S.taxpurposes,isconsideredindefinitelyreinvestedinVMware’sforeignoperationsandnoprovisionforU.S.taxeshasbeenprovidedwithrespecttosuch
income.Atthistime,itisnotpracticabletoestimatetheamountoftaxthatmaybepayableifVMwareweretorepatriatetheseearnings.
AlthoughVMwarefilesaconsolidatedfederaltaxreturnwithEMC,theincometaxprovisioniscalculatedprimarilyasthoughVMwarewereaseparate
taxpayer.However,certaintransactionsthatVMwareandEMCarepartiestoareassessedusingconsolidatedtaxreturnrules.
Pursuanttothetaxsharingagreement,VMwarehasmadepaymentstoEMCandEMChasmadepaymentstoVMware.Thefollowingtablesummarizesthese
paymentsmadebetweenVMwareandEMCduringtheyearsendedDecember31,2015,2014and2013(tableinmillions):

For the Year Ended December 31,

2015

2014

2013
PaymentsfromVMwaretoEMC $ 144

$ 150

$ 8
PaymentsfromEMCtoVMware —

—

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PaymentsbetweenVMwareandEMCunderthetaxsharingagreementrelatetoVMware’sportionoffederalincometaxesonEMC’sconsolidatedtaxreturn
aswellasthestatepaymentsforcombinedstates.PaymentsfromEMCtoVMwarerelatetoperiodswhereVMwarehadfederaltaxcreditsinexcessoffederaltax
liabilities.TheamountsthatVMwareeitherpaystoorreceivesfromEMCforitsportionoffederalincometaxesonEMC’sconsolidatedtaxreturndifferfromthe
amountsVMwarewouldoweonaseparatereturnbasisandthedifferenceispresentedasacomponentofstockholders’equity.IntheyearendedDecember31,
2015,2014and2013,thedifferencebetweentheamountoftaxcalculatedonaseparatereturnbasisandtheamountoftaxcalculatedperthetaxsharing
agreementwasrecordedasanincreaseinstockholders’equityof$13million,andadecreaseof$12millionand$3million,respectively.
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