Salesforce.com 2013 Annual Report Download - page 101

to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an
annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before
utilization.
Tax Benefits Related to Stock-Based Compensation
The total income tax benefit in the accompanying consolidated statements of operations related to stock-
based awards was $113.9 million, $76.0 million and $44.1 million for fiscal 2013, 2012 and 2011, respectively.
Beginning in fiscal 2013, the majority of the tax benefit was not recognized as a result of the valuation
allowance.
The Company reduced its income tax payable by the tax benefit realized from the exercise, sale or vesting of
the stock options or similar instruments during fiscal 2013 was $127.2 million.
Unrecognized Tax Benefits and Other Considerations
Tax positions for the Company and its subsidiaries are subject to income tax audits by many tax
jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it
is more likely than not that the position is sustainable upon examination by the taxing authority, based on the
technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than
50 percent likely to be realized upon settlement with the taxing authority. The Company had gross unrecognized
tax benefits of $75.1 million and $52.0 million as of January 31, 2013 and 2012 respectively.
A reconciliation of the beginning and ending balance of total unrecognized tax benefits for fiscal years
2013, 2012, and 2011 is as follows (in thousands):
Fiscal Year Ended January 31,
2013 2012 2011
Balance as of February 1, .................................. $51,971 $27,462 $22,053
Tax positions taken in prior period:
Gross increases ...................................... 7,304 10,008 41
Gross decreases ..................................... (4,460) (23) (811)
Tax positions taken in current period:
Gross increases ...................................... 24,401 15,965 8,047
Settlements ............................................. (121) 0 (39)
Lapse of statute of limitations .............................. (4,159) (1,143) (1,741)
Currency translation effect ................................. 208 (298) (88)
Balance as of January 31, .................................. $75,144 $51,971 $27,462
For fiscal year 2013, 2012 and 2011 total unrecognized tax benefits in an amount of $32.3 million,
$39.1 million, and $20.4 million respectively, if recognized, would reduce income tax expense and the
Company’s effective tax rate.
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income
tax provision. The Company accrued no penalties and interest in the amount of $1.7 million in income tax
expense at the end of January 31, 2013.
The Company’s U.S. federal and state tax returns for several tax years since February 1999, which was the
inception of the Company, remain open to examination. Outside the U.S., the Company operates in major
jurisdictions including Canada, Australia, Japan and United Kingdom. With some exceptions, all tax years in
jurisdictions outside of U.S. are generally open and could be subject to examinations, however, in Japan and
United Kingdom, the Company is no longer subject to examinations for years prior to fiscal 2008 and 2010,
respectively.
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