Symantec 2007 Annual Report Download - page 56

Provision for Income Taxes
2007 2006 2005
Year Ended March 31,
($ in thousands)
Tax provision on earnings............................. $227,242 $227,068 $267,720
Effective tax rate on earnings .......................... 36% 63% 31%
Tax provision on repatriation .......................... $ — $(21,197) $ 54,249
Total tax provision .................................. $227,242 $205,871 $321,969
Total effective tax rate ............................... 36% 57% 38%
Our effective tax rate on Income before income taxes was approximately 36%, 57%, and 38% in fiscal 2007,
2006, and 2005, respectively. The effective tax rate for fiscal 2007 reflects the impact of non-deductible stock-based
compensation and the fiscal 2003 and 2004 Internal Revenue Service, or IRS, audit settlement. The effective tax rate
for fiscal 2006 reflects the impact of the IPR&D charges and other acquisition-related charges that are nonde-
ductible for tax reporting purposes, partially offset by foreign earnings taxed at a lower rate than the U.S. tax rate,
and the effect of the true-up of taxes on repatriated earnings. The effective tax rate in fiscal 2005 reflects the
additional tax expense attributable to the $500 million of foreign earnings that we repatriated under the American
Jobs Creation Act.
We believe realization of substantially all of our deferred tax assets as of March 31, 2007 of $578 million, after
application of the valuation allowance, is more likely than not based on the future reversal of temporary tax
differences. Realization of approximately $43 million of our deferred tax assets as of March 31, 2007 is dependent
upon future taxable earnings exclusive of reversing temporary differences in certain foreign jurisdictions. Levels of
future taxable income are subject to the various risks and uncertainties discussed in Item 1A, Risk Factors, set forth
in this annual report. An additional valuation allowance against net deferred tax assets may be necessary if it is more
likely than not that all or a portion of the net deferred tax assets will not be realized. We will assess the need for an
additional valuation allowance on a quarterly basis. Of the $60 million total valuation allowance provided against
our deferred tax assets, approximately $54 million is attributable to acquisition-related assets, the benefit of which
will reduce goodwill when and if realized. The valuation allowance decreased by $6 million in fiscal 2007, all of
which was attributable to acquisition-related assets, the benefit of which reduced goodwill. The valuation allowance
increased by $59 million in fiscal 2006, of which approximately $58 million was attributable to acquisition-related
assets.
American Jobs Creation Act of 2004 — Repatriation of foreign earnings
In the March 2005 quarter, we repatriated $500 million from certain of our foreign subsidiaries that qualified
for the 85% dividends received deduction under the provisions of the American Jobs Creation Act of 2004, or the
Jobs Act, enacted in October 2004. We recorded a tax charge for this repatriation of $54 million in the March 2005
quarter.
In May 2005, clarifying language was issued by the U.S. Department of Treasury and the IRS with respect to
the treatment of foreign taxes paid on the earnings repatriated under the Jobs Act and in September 2005, additional
clarifying language was issued regarding the treatment of certain deductions attributable to the earnings repatri-
ation. 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.
Other tax matters
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. On June 26,
2006, we filed a petition with the U.S. Tax Court to protest a Notice of Deficiency. On August 30, 2006, the IRS
50