Yahoo 2012 Annual Report Download - page 122

During the last quarter of 2011, the Company commenced discussions with the IRS Appeals Division to settle the
contested adjustments for certain intercompany transfer- pricing matters from the 2005 and 2006 income tax
examination. A tentative agreement has been reached and if the matter is resolved on the basis that is currently
being discussed with the IRS, then the settlement will not cause the Company to have tax exposure beyond what
has already been provided. The Company has protested similar transfer-pricing adjustments to our 2007 and 2008
income tax returns. No hearings with the IRS Appeals Division have been held. The Company’s 2009 and 2010
U.S. income tax returns are currently under IRS examination.
As of December 31, 2012, the Company’s 2005 through 2008 tax returns are also under various stages of audit
by the California Franchise Tax Board. While the Franchise Tax Board has not reached any conclusions on the
2007 and 2008 returns, the Company has protested the proposed adjustments to the 2005 and 2006 returns. The
Company is also in various stages of examination and appeal in connection with its taxes in other U.S. states and
in foreign jurisdictions, which generally span tax years 2005 through 2010.
While it is difficult to determine when the examinations will be settled or their final outcomes, certain audits in
various jurisdictions related to multinational income tax issues are expected to be resolved in the foreseeable
future. As a result, it is reasonably possible that the unrecognized tax benefits could be reduced by up to
approximately $90 million in the next twelve months. The Company believes that it has adequately provided for
any reasonably foreseeable adjustment and that any settlement will not have a material adverse effect on the
Company’s consolidated financial position, results of operations, or cash flows.
The Company may have additional tax liabilities in China related to the sale to Alibaba Group of 523 million
ordinary shares of Alibaba Group that took place during the year ended December 31, 2012. Any taxes assessed
and paid in China are expected to be ultimately offset and recovered in the U.S.
During the year ended December 31, 2012, tax authorities from the Brazilian State of Sao Paulo assessed certain
indirect taxes against the Company’s Brazilian subsidiary, Yahoo! do Brasil Internet Ltda., related to online
advertising services. The assessment totaling approximately $85 million is for calendar years 2008 and 2009. The
Company currently believes the assessment is without merit. The Company does not believe that it is probable
the assessment will be sustained upon appeal and, accordingly, has not recorded an accrual for the assessment.
Note 16 R ELATED P ARTY T RANSACTIONS
Revenue from related parties, excluding Yahoo Japan and Alibaba Group, represented approximately 1 percent
of total revenue for the years ended December 31, 2010, 2011, and 2012. Management believes that the terms of
the agreements with these related parties are comparable to the terms obtained in arm’s-length transactions with
unrelated similarly situated customers of the Company.
See Note 8—“Investments in Equity Interests” for additional information related to transactions involving Yahoo
Japan and Alibaba Group.
Note 17 S EGMENTS
The Company manages its business geographically. The primary areas of measurement and decision-making are
the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific. Management relies on an internal
reporting process that provides revenue ex-TAC, which is defined as revenue less TAC, direct costs excluding
TAC by segment, and consolidated income from operations for making decisions related to the evaluation of the
financial performance of, and allocating resources to, the Company’s segments.
108