Microsoft 2014 Annual Report Download - page 68

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Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid
or recovered.
As of June 30, 2014, we have not provided deferred U.S. income taxes or foreign withholding taxes on temporary
differences of approximately $92.9 billion resulting from earnings for certain non-U.S. subsidiaries which are permanently
reinvested outside the U.S. The unrecognized deferred tax liability associated with these temporary differences was
approximately $29.6 billion at June 30, 2014.
Income taxes paid were $5.5 billion, $3.9 billion, and $3.5 billion in fiscal years 2014, 2013, and 2012, respectively.
Uncertain Tax Positions
Unrecognized tax benefits as of June 30, 2014, 2013, and 2012, were $8.7 billion, $8.6 billion, and $7.2 billion,
respectively. If recognized, these tax benefits would affect our effective tax rates for fiscal years 2014, 2013, and 2012, by
$7.0 billion, $6.5 billion, and $6.2 billion, respectively.
As of June 30, 2014, 2013, and 2012, we had accrued interest expense related to uncertain tax positions of $1.5 billion,
$1.3 billion, and $939 million, respectively, net of federal income tax benefits. Interest expense on unrecognized tax
benefits was $235 million, $400 million, and $154 million in fiscal years 2014, 2013, and 2012, respectively.
The aggregate changes in the balance of unrecognized tax benefits were as follows:
(In millions)
Y
ear Ended June 30, 2014 2013 2012
Balance, beginning of year $ 8,648 $ 7,202 $ 6,935
Decreases related to settlements (583) (30) (16)
Increases for tax positions related to the current year 566 612 481
Increases for tax positions related to prior years 217
931 118
Decreases for tax positions related to prior years (95) (65) (292)
Decreases due to lapsed statutes of limitations (39) (2) (24)
Balance, end of year $ 8,714 $ 8,648 $ 7,202
During the third quarter of fiscal year 2011, we reached a settlement of a portion of an I.R.S. audit of tax years 2004 to
2006, which reduced our income tax expense by $461 million. While we settled a portion of the I.R.S. audit, we remain
under audit for these years. In February 2012, the I.R.S. withdrew its 2011 Revenue Agents Report and reopened the
audit phase of the examination. As of June 30, 2014, the primary unresolved issue relates to transfer pricing, which could
have a significant impact on our consolidated financial statements if not resolved favorably. We believe our allowances for
income tax contingencies are adequate. We have not received a proposed assessment for the unresolved issues and do
not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not
anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months. We also
continue to be subject to examination by the I.R.S. for tax years 2007 to 2013.
We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject
to examination for tax years 1996 to 2013, some of which are currently under audit by local tax authorities. The
resolutions of these audits are not expected to be material to our consolidated financial statements.
NOTE 14 — UNEARNED REVENUE
Unearned revenue by segment was as follows, with segments with significant balances shown separately:
(In millions)
June 30, 2014 2013
Commercial Licensing $ 19,099 $ 18,460
Commercial Other 3,934 2,272
Rest of the segments 2,125 1,667
Total $ 25,158 $ 22,399