Dell 2008 Annual Report Download - page 74

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A portion of Dell's operations is subject to a reduced tax rate or is free of tax under various tax holidays that expire in whole or in part during Fiscal
2010 through 2018. Many of these tax holidays and reduced tax rates may be extended when certain conditions are met or may be terminated early if
certain conditions are not met. The income tax benefits attributable to the tax status of these subsidiaries were estimated to be approximately
$338 million ($0.17 per share) in Fiscal 2009, $502 million ($0.23 per share) in Fiscal 2008, and $282 million ($0.13 per share) in Fiscal 2007.
In March 2007, China announced a broad program to reform tax rates and incentives, effective January 1, 2008, including the introduction of
phased-in transition rules that could significantly alter the Chinese tax structure for U.S. companies operating in China. Clarification of the rules,
which phase in higher statutory tax rates over a five year period, was issued in late Fiscal 2008. As a result, Dell increased the relevant deferred tax
assets to reflect the enacted statutory rates for the year in which it expects the differences to reverse, which resulted in an additional tax benefit of
$27 million in Fiscal 2008.
The effective tax rate differed from the statutory U.S. federal income tax rate as follows:
Fiscal Year Ended
January 30, February 1, February 2,
2009 2008 2007
U.S. federal statutory rate 35.0% 35.0% 35.0%
Foreign income taxed at different rates (11.2) (13.6) (14.9)
Imputed intercompany charges - - 2.0
In-process research and development - 0.8 -
Other 1.6 0.8 0.7
Total 25.4% 23.0% 22.8%
The increase in Dell's Fiscal 2009 effective tax rate, compared to Fiscal 2008, is due primarily to an increased profitability mix in higher tax
jurisdictions during Fiscal 2009 as compared to Fiscal 2008. The increase in Dell's Fiscal 2008 effective tax rate, compared to Fiscal 2007, is due to
the tax related to accessing foreign cash and the nondeductibility of acquisition-related IPR&D charges offset primarily by the increase of
consolidated profitability in lower foreign tax jurisdictions during Fiscal 2008 as compared to Fiscal 2007.
Dell adopted FIN No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 ("FIN 48") effective
February 3, 2007. FIN 48 provides that a tax benefit from an uncertain tax position may be recognized in the financial statements only when it is
more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based
on the technical merits and a consideration of the relevant taxing authority's widely understood administrative practices and precedents. Once the
recognition threshold is met, the portion of the tax benefit that is recorded represents the largest amount of tax benefit that is greater than 50 percent
likely to be realized upon settlement with a taxing authority. The cumulative effect of adopting FIN 48 was a $62 million increase in tax liabilities
and a corresponding decrease to the February 2, 2007 stockholders' equity balance of which $59 million related to retained earnings and $3 million
related to additional-paid-in-capital. In addition, consistent with the provisions of FIN 48, Dell changed the classification of $1.1 billion of income
tax liabilities from current to non-current because payment of cash is not anticipated within one year of the balance sheet date. These non-current
income tax liabilities are recorded in other
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