eBay 2015 Annual Report Download - page 58

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larger stock-based compensation expense recorded in the U.S. for U.S. based employees, overhead related to our
corporate operations which are primarily U.S. based and higher average margins earned by non-U.S. businesses.
Our provision for income taxes differs from the provision computed by applying the U.S. federal statutory
rate of 35% due primarily to lower tax rates associated with certain earnings from our operations in certain
lower-tax jurisdictions outside the U.S. The impact on our provision for income taxes of foreign income being
taxed at different rates than the U.S. federal statutory rate was a benefit of approximately $399 million in 2015,
$432 million in 2014 and $403 million in 2013. We benefit from tax rulings concluded in several different
jurisdictions, most significantly Switzerland and Luxembourg. These rulings provide for significantly lower rates
of taxation on certain classes of income. The cash benefit of these reduced rates totaled approximately $319
million in 2015, $339 million in 2014 and $328 million in 2013. The foreign jurisdictions with lower tax rates
that had the most significant impact on our provision for income taxes in the periods presented include
Switzerland and Luxembourg. See “Note 17 — Income Taxes” to the consolidated financial statements included
in this report for more information on our tax rate reconciliation.
Our provision for income taxes is volatile and, in general, is adversely impacted by earnings being lower
than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher
tax rates. Our provision for income taxes does not include provisions for U.S. income taxes and foreign
withholding taxes associated with $6 billion of undistributed earnings of certain foreign subsidiaries because we
intend to reinvest those earnings indefinitely in our foreign subsidiaries. If these earnings were distributed into
the U.S. in the form of dividends to eBay companies domiciled in the U.S. or otherwise, or if the shares of the
relevant foreign subsidiaries were sold or otherwise transferred, we would be subject to additional U.S. income
taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Further, as a result of
certain of our ongoing employment and capital investment actions and commitments, our income in certain
countries including Switzerland and Luxembourg, is subject to reduced tax rates. Our failure to meet these
commitments could adversely impact our provision for income taxes. Additionally, please see the information in
“Item 1A: Risk Factors” under the caption “We may have exposure to greater than anticipated tax liabilities.”
From time to time, we engage in certain intercompany transactions and legal entity restructurings. We
consider many factors when evaluating these transactions, including the alignment of our corporate structure with
our organizational objectives and the operational and tax efficiency of our corporate structure, as well as the
long-term cash flows and cash needs of our different businesses. These transactions may impact our overall tax
rate and/or result in additional cash tax payments. The impact in any period may be significant. These
transactions may be complex and the impact of such transactions on future periods may be difficult to estimate.
We are regularly under examination by tax authorities both domestically and internationally. We believe
that adequate amounts have been reserved for any adjustments that may ultimately result from these
examinations, although we cannot assure you that this will be the case given the inherent uncertainties in these
examinations. Due to the ongoing tax examinations, we believe it is impractical to determine the amount and
timing of these adjustments.
Discontinued Operations
On July 17, 2015, we completed the Distribution, pursuant to which PayPal became an independent
company. Beginning in the third quarter of 2015, PayPal’s historical financial results for periods prior to the
Distribution have been reflected in our consolidated statement of income, retrospectively, as discontinued
operations. Additionally, the related assets and liabilities associated with the discontinued operations in the prior
year consolidated balance sheet are classified as discontinued operations. Pursuant to the terms of the separation
and distribution agreement entered into between us and PayPal on June 26, 2015, upon Distribution, assets
related to the PayPal business were transferred to, and liabilities related to the PayPal business were retained or
assumed by, PayPal. See “Note 4 — Discontinued Operations” to our consolidated financial statements included
in this report.
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