Dell 2009 Annual Report Download - page 39

Table of Contents
revaluation gains from unhedged currencies. During Fiscal 2009, we recognized a $35 million decline in the fair market value of our
investments related to our deferred compensation plan. These expenses are included in Other in the table above.
Income and Other Taxes
Our effective tax rate was 29.2%, 25.4%, and 23.0% for Fiscal 2010, 2009, and 2008, respectively. The differences between our effective
tax rate and the U.S. federal statutory rate of 35% principally result from our geographical distribution of taxable income and permanent
differences between the book and tax treatment of certain items. The increase in our effective income tax rate for Fiscal 2010 from Fiscal
2009 was primarily due to an increased mix of profits in higher tax rate jurisdictions. Our foreign earnings are generally taxed at lower
rates than in the United States. We continue to assess our business model and its impact in various tax jurisdictions.
Deferred tax assets and liabilities for the estimated tax impact of temporary differences between the tax and book basis of assets and
liabilities are recognized based on the enacted statutory tax rates for the year in which we expect the differences to reverse. A valuation
allowance is established against a deferred tax asset when it is more likely than not that the asset or any portion thereof will not be
realized. Based upon all the available evidence, including expectation of future taxable income, we have determined that we will be able
to realize all of our deferred tax assets, net of valuation allowances.
The adoption of the accounting guidance for uncertain tax positions resulted in a decrease to stockholders' equity of approximately
$62 million in the first quarter of Fiscal 2008. For a further discussion of the impact of uncertain tax positions, see Note 10 of Notes to
Consolidated Financial Statements included in "Part II — Item 8 — Financial Statements and Supplementary Data."
We are currently under income tax audits in various jurisdictions, including the United States. The tax periods open to examination by the
major taxing jurisdictions to which we are subject include fiscal years 1997 through 2010. As a result of these audits, we maintain
ongoing discussions and negotiations relating to tax matters with the taxing authorities in these various jurisdictions. Our U.S. federal
income tax returns for fiscal years 2007 through 2009 are currently under examination by the Internal Revenue Service ("IRS"). In
April 2009, the IRS issued a Revenue Agent's Report ("RAR,") for fiscal years 2004 through 2006 proposing certain assessments
primarily related to transfer pricing matters. We disagree with certain of the proposed assessments, primarily related to transfer pricing
matters, included within the RAR and have protested them in accordance with IRS administrative appeals procedures. The first meeting
between Dell and the IRS Appeals Division is scheduled for early 2010. We anticipate the appeals process will involve multiple meetings
and could take several years to complete before additional clarity will emerge regarding potential outcomes. We continue to believe that
adequate reserves have been provided relating to all matters contained in tax periods open to examination. However, should we
experience an unfavorable outcome in the matter before the IRS Appeals Division, such an outcome could have a material impact on our
financial statements. Although the timing of income tax audit resolution and negotiations with taxing authorities are highly uncertain, we
do not anticipate a significant change to the total amount of unrecognized income tax benefits within the next 12 months.
We take certain non-income tax positions in the jurisdictions in which we operate and have received certain non-income tax assessments
from various jurisdictions. We are also involved in related non-income tax litigation matters in various jurisdictions. These jurisdictions
include Brazil, where we are in litigation with a state government over the proper application of transactional taxes to warranties and
software related to the sale of computers as well as the appropriate use of state statutory incentives to reduce the transactional taxes. Tax
litigation in Brazil has historically taken multiple years to resolve. While we believe we will ultimately prevail in the Brazilian courts, we
have also negotiated certain tax incentives with the state that can be used to offset potential tax liabilities should the courts rule against
us. The incentives are based upon maintaining a certain number of jobs within the state. We believe our positions are supportable, a
liability is not probable, and that we will ultimately prevail. In the normal course of business, our positions and conclusions related to our
non-income taxes could be challenged and assessments may be made. To the extent new information is obtained and our views on our
positions, probable outcomes of assessments, or litigation change, changes in estimates to our accrued liabilities would be recorded in the
period in which the determination is made.
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