eBay 2011 Annual Report Download - page 75

expected recoveries, and provided for such losses through charges to our consolidated statement of income. These estimates have been based on
our assessment of the facts and circumstances at each balance sheet date and are subject to change based upon new information and future events.
From time to time, we are involved in disputes and regulatory inquiries that arise in the ordinary course of business. We are currently
involved in certain legal proceedings as discussed in “Item 1A: Risk Factors,” “Item 3: Legal Proceedings” and “Note 13 - Commitments and
Contingencies”
to the consolidated financial statements included in this report. We believe that we have meritorious defenses to the claims against
us, and we intend to defend ourselves vigorously. However, even if successful, our defense against certain actions will be costly and could require
significant amounts of management's time and result in the diversion of significant operational resources. If the plaintiffs were to prevail on
certain claims, we might be forced to pay significant damages and licensing fees, modify our business practices or even be prohibited from
conducting a significant part of our business. Any such results could materially harm our business and could result in a material adverse impact on
the financial position, results of operations or cash flows of any or all of our business segments.
Accounting for Income Taxes
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in
which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authorities.
Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review
our tax positions quarterly and adjust the balances as new information becomes available. Our income tax rate is significantly affected by the tax
rates that apply to our foreign earnings. In addition to local country tax laws and regulations, our income tax rate depends on the extent that our
earnings are indefinitely reinvested outside the U.S. Indefinite reinvestment is determined by management's judgment about and intentions
concerning our future operations. At December 31, 2011 , $10.0 billion of earnings had been indefinitely reinvested outside the U.S, primarily in
active non-U.S. business operations. We do not intend to repatriate these earnings to fund U.S. operations and, accordingly, we do not provide for
U.S. federal income and foreign withholding these on these earnings.
Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because
of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit
carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable
income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies.
These sources of income rely heavily on estimates that are based on a number of factors, including our historical experience and short- and long-
range business forecasts. At December 31, 2011 , we had a valuation allowance on certain loss carryforwards based on our assessment that it is
more likely than not that the deferred tax asset will not be realized.
We recognize and measure uncertain tax positions in accordance with generally accepted accounting principles in the U.S., or GAAP,
pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon
ultimate settlement. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax
return. GAAP further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in
earnings in the quarter in which such change occurs. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax
expense.
We file annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax
position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular
uncertain tax position, we believe that our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the
related interest, where appropriate in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.
The following table illustrates our effective tax rates for 2011 , 2010 and 2009 (in thousands, except percentages):
Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower
statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuations of our deferred tax assets
or liabilities, or by changes or interpretations in tax laws, regulations or accounting
68
Year Ended December 31,
2011 2010 2009
Provision for income taxes
$
680,659
$
297,486
$
490,054
As a % of income before income taxes
17
%
14
%
17
%