Symantec 2007 Annual Report Download - page 115

in September 2005, additional clarifying language was issued regarding the treatment of certain deductions
attributable to the earnings repatriation. As a result of this clarifying language, we reduced the tax expense
attributable to the repatriation by approximately $21 million in fiscal 2006, which reduced the cumulative tax
charge on the repatriation to $33 million.
On March 29, 2006, we received a Notice of Deficiency from the IRS claiming that we owe additional taxes,
plus interest and penalties, for the 2000 and 2001 tax years based on an audit of Veritas, which we acquired in July
2005. The incremental tax liability asserted by the IRS with regard to the Veritas claim was $867 million, excluding
penalties and interest. The Notice of Deficiency primarily relates to transfer pricing in connection with a technology
license agreement between Veritas and a foreign subsidiary. We do not agree with the IRS position and we have
petitioned the Tax Court to protest the assessment. In the March 2007 quarter, the IRS agreed to dismiss any penalty
assessment, and we have otherwise agreed to settle several of the lesser issues (representing $35 million of the total
assessment) for $7 million of tax. As a result, the outstanding issue represents $832 million of tax. No payments will
be made on the assessment until the issue is definitively resolved. If, upon resolution, we are required to pay an
amount in excess of our provision for this matter, the incremental amounts due would be accounted for principally
as additions to the cost of Veritas purchase price. Any incremental interest accrued subsequent to the date of the
Veritas acquisition would be recorded as an expense in the period the matter is resolved.
In the fourth quarter of fiscal 2006, we made $90 million of tax-related adjustments to the purchase accounting
for Veritas, consisting of $120 million of additional pre-acquisition tax reserve-related adjustments, partially offset
by a $30 million reduction in other pre-acquisition taxes payable. While we strongly disagree with the IRS over both
its transfer pricing methodologies and the amount of the assessment, we have established additional tax reserves for
all Veritas pre-acquisition years to account for both contingent tax and interest risk.
On March 30, 2006, we received notices of proposed adjustment from the IRS with regard to an unrelated audit
of Symantec for fiscal 2003 and 2004. The IRS claimed that we owed an incremental tax liability with regard to this
audit of $110 million, excluding penalties and interest. The incremental tax liability primarily related to transfer
pricing matters between Symantec and a foreign subsidiary. On September 5, 2006, we executed a closing
agreement with the IRS with respect to the audit of Symantec’s fiscal 2003 and 2004 federal income tax returns. The
closing agreement represents the final assessment by the IRS of additional tax for these fiscal years of approx-
imately $35 million, including interest. Based on the final settlement, a tax benefit of $8 million is reflected in the
September 2006 quarter.
In the fourth quarter of fiscal 2006, we increased our tax reserves by an additional $64 million in connection
with all open Symantec tax years (fiscal 2003 to 2006). Since these reserves relate to licensing arising from acquired
technology, the additional accruals are primarily offset by deferred taxes.
We are as yet unable to confirm our eligibility to claim a lower tax rate on a distribution made from a Veritas
foreign subsidiary prior to the acquisition. The distribution was intended to be made pursuant to the Jobs Act, and
therefore eligible for a 5.25% effective U.S. federal rate of tax, in lieu of the 35% statutory rate. We are seeking a
ruling from the IRS on the matter. Because we were unable to obtain this ruling prior to filing the Veritas tax return
in May 2006, we paid $130 million of additional U.S. taxes. Since this payment relates to the taxability of foreign
earnings that are otherwise the subject of the IRS assessment, this additional payment reduced the amount of taxes
payable accrued as part of the purchase accounting for pre-acquisition contingent tax risks.
Note 14. Litigation
On March 29, 2006, we received a Notice of Deficiency from the IRS claiming that we owe additional taxes,
plus interest and penalties, for the 2000 and 2001 tax years based on an audit of Veritas. The incremental tax liability
asserted by the IRS was $867 million, excluding penalties and interest. On June 26, 2006, we filed a petition with the
U.S. Tax Court protesting the IRS claim for such additional taxes. On August 30, 2006, the IRS answered our
petition and this matter has been docketed for trial in U.S. Tax Court. We have subsequently agreed to pay $7 million
109
SYMANTEC CORPORATION
Notes to Consolidated Financial Statements — (Continued)