Yahoo 2013 Annual Report Download - page 60

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Significant variances year-over-year as shown above are further explained as follows:
• The federal research and development credit expired on December 31, 2011. On January 2, 2013, the
American Taxpayer Relief Act of 2012 was signed into law retroactively extending the credit for amounts paid
or incurred after December 31, 2011 and before January 1, 2014. As such, the provision for income taxes for
the year ended December 31, 2013 reflects the benefit of both the 2012 and 2013 federal research and
development tax credits.
• In 2012, in connection with a review of our cash position and anticipated cash needs for investment in our core
business, including potential acquisitions, capital expenditures and stock repurchases, we made a one-time
distribution of cash from certain of our consolidated foreign subsidiaries resulting in an overall net benefit for
the year ended December 31, 2012 of approximately $117 million. The benefit is primarily due to excess
foreign tax credits. Of the $117 million, $102 million is included above within “effect of non-U.S. operations.”
In 2013, “effect of non-U.S. operations” includes an additional benefit of $36 million due to more excess
foreign tax credits becoming available as certain tax matters were resolved with various tax authorities during
the year.
• In 2013, we settled the IRS income tax examination for the 2005 and 2006 returns resulting in a benefit of
approximately $54 million.
The U.S. Department of the Treasury issued final regulations on the deduction and capitalization of expenditures
related to tangible property for income tax purposes. These regulations apply to our tax year beginning on
January 1, 2014. Based on our assessment as of December 31, 2013, these regulations will not have a material
impact on our consolidated financial position, results of operations, or cash flows.
As of December 31, 2013, we do not anticipate repatriation of our remaining undistributed foreign earnings of
approximately $2.6 billion. Those earnings are principally related to Yahoo Japan. If these earnings were to be
repatriated in the future, we may be subject to additional U.S. income taxes (subject to an adjustment for foreign
tax credits). It is not practicable to determine the income tax liability that might be incurred if these earnings
were to be repatriated.
As of December 31, 2013, our federal 2009 and 2010 income tax returns are currently under IRS examination.
Furthermore, our California 2005 through 2008 tax returns are also under various stages of audit by the
California Franchise Tax Board. While the California Franchise Tax Board has not reached any conclusions on
the 2007 and 2008 returns, we have protested the proposed California Franchise Tax Board’s adjustments to the
2005 and 2006 returns. We are also in various stages of examination and appeal in connection with our taxes in
foreign jurisdictions, which generally span tax years 2005 through 2012.
It is difficult to predict when these examinations will be settled or what their final outcomes will be. We believe
that we have adequately provided for any reasonably foreseeable adjustment and that any settlement will not
have a material adverse effect on our consolidated financial position, results of operations, or cash flows. Our
gross amount of unrecognized tax benefits as of December 31, 2013 is $695 million, of which $606 million is
recorded on the consolidated balance sheets.
We may have additional tax liabilities in China related to the sale to Alibaba Group of 523 million Alibaba
Group Shares 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 our 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. We currently
believe the assessment is without merit. We believe the risk of loss is remote and have not recorded an accrual
for the assessment.
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