Yahoo 2014 Annual Report Download - page 150

The Company’s gross amount of unrecognized tax benefits as of December 31, 2014 increased by
$328 million from the recorded balance as of December 31, 2013 primarily related to tax reserves
associated with the sale of the Alibaba Group ADSs and foreign tax credits. The Company recognizes
interest and/or penalties related to uncertain tax positions in income tax expense. To the extent
accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced
and reflected as a reduction of the overall income tax provision in the period that such determination
is made. During 2012, 2013 and 2014, interest and penalties recorded in the consolidated statements
of income were a charge of $37 million, $21 million (net of interest received of $4 million) and $83
million, respectively. The amounts of accrued interest and penalties recorded on the consolidated
balance sheets as of December 31, 2013 and 2014 were approximately $76 million and $159 million,
respectively.
The Company is in various stages of examination and appeal in connection with our taxes both in the
U.S. and in foreign jurisdictions. Those audits generally span tax years 2005 through 2012. As of
December 31, 2014, the IRS Appeals division has finalized our protest of the 2007 and 2008 audit
results, and the IRS exam team has finalized the examination of our 2009 and 2010 U.S. federal
income tax returns. The Company does not plan to appeal the results of the IRS examination of our
2009 and 2010 U.S. federal income tax returns. The Company has protested the proposed California
Franchise Tax Board’s adjustments to the 2005 through 2008 returns, but no conclusions have been
reached to date. While it is difficult to determine when the examinations will be settled or their final
outcomes, 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 its 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 Alibaba Group shares that took place during the year ended December 31, 2012 and
related to the sale of the 140 million Alibaba Group ADSs sold in the IPO that took place during the
three months ended September 30, 2014. Any taxes assessed and paid in China are expected to be
ultimately offset and recovered in the U.S. through the use of foreign tax credits with respect to the
sale in 2012. Any taxes assessed and paid in China are expected to be ultimately offset and recovered
in the U.S. with respect to the sale in 2014 through the use of foreign tax credits to the extent there is
sufficient foreign source income.
Tax authorities from the Brazilian State of Sao Paulo have assessed certain indirect taxes against the
Company’s Brazilian subsidiary, Yahoo! do Brasil Internet Ltda., related to online advertising services.
The assessment totaling approximately $120 million is for calendar years 2008 through 2011. The
Company currently believes the assessment is without merit. The Company believes the risk of loss is
remote and has not recorded an accrual for the assessment.
Note 17 Transactions With Related Parties
Revenue from related parties, excluding Yahoo Japan and Alibaba Group, represented approximately
1 percent of total revenue for the years ended December 31, 2012, 2013, and 2014. 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 Accounted for Using the Equity Method of Accounting”
for additional information related to transactions involving Yahoo Japan and Alibaba Group (a related
party through September 24, 2014).
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