eBay 2012 Annual Report Download - page 71

Interest and Other, Net
Interest and other, net, primarily consists of interest earned on cash, cash equivalents and investments, as well as foreign exchange
transaction gains and losses, our portion of operating results from investments accounted for under the equity method of accounting, investment
gain/loss on acquisitions, and interest expense, consisting of interest charges on any amounts borrowed and commitment fees on unborrowed
amounts under our credit agreement and interest expense on our outstanding commercial paper and debt securities. Interest and other, net
excludes interest expense on borrowings incurred to finance Bill Me Later's portfolio of loan receivables, which is included in cost of net
revenues (see "Note 19 - Interest and Other, Net" to the consolidated financial statements included in this report for more information).
Interest and other, net, decreased $1.3 billion in 2012 compared to 2011 . The decrease in interest and other, net was due primarily to an
investment gain of approximately $1.7 billion associated with the sale of remaining 30% equity interest in Skype in 2011. The decrease in
interest and other, net was partially offset by a gain on the divestiture of a business, a favorable impact from the foreign currency activity,
favorable resolution of an indirect tax dispute and higher interest income from investments.
Interest and other, net, increased $1.5 billion in 2011 compared to 2010. The increase in interest and other, net was due primarily to an
investment gain of approximately $1.7 billion associated with the sale of our remaining 30% equity interest in Skype, partially offset by a loss
from a divested business of $257 million (see "Note 3 - Business Combinations and Divestitures" to the consolidated financial statements
included in this report for more information).
Provision for Income Taxes
Our effective tax rate was 15% in 2012 compared to 17% in 2011 . The decrease in our effective tax rate during 2012 compared to 2011
was due primarily to U.S. taxes on the sale of the remaining equity interest in Skype in 2011 and the favorable impact from the sale of Rent.com
in 2012.
Our effective tax rate was 17% in 2011 compared to 14% in 2010. The increase in our effective tax rate during 2011 compared to 2010
was due primarily to an increase in earnings from our operations in higher-tax jurisdictions, primarily the U.S., and U.S. taxes on the sale of our
remaining equity interest in Skype.
Our provision for income taxes differs from the provision computed by applying the U.S. federal statutory rate of 35% due primarily to
lower tax rates associated with certain earnings from our operations in certain lower-tax jurisdictions outside the U.S. The impact on our
provision for income taxes of foreign income being taxed at different rates than the U.S. federal statutory rate was a benefit of approximately
$617 million in 2012, $772 million in 2011, net of $321 million charge for U.S. taxes on the sale of Skype, and $441 million in 2010. We have
received tax rulings in certain foreign jurisdictions that provide for lower rates of taxation on certain classes of income and require various
thresholds of investment and employment in these jurisdictions. The cash benefit of these reduced rates totaled approximately $439 million in
2012, $697 million in 2011 and $284 million in 2010. The foreign jurisdictions with lower tax rates that had the most significant impact on our
provision for income taxes in the periods presented include Switzerland, Singapore and Luxembourg. See "Note 17 - Income Taxes" to the
consolidated financial statements included in this report for more information on our tax rate reconciliation. Pursuant to the American Taxpayer
Relief Act of 2012, the federal research and development credit has been reenacted retroactively to January 1, 2012. As the law implementing
this change was signed on January 3, 2013, we expect to record an immaterial discrete tax benefit during the first quarter of 2013.
Our provision for income taxes is volatile and, in general, is adversely impacted by earnings being lower than anticipated in countries that
have lower tax rates and higher than anticipated in countries that have higher tax rates. Our provision for income taxes does not include
provisions for U.S. income taxes and foreign withholding taxes associated with the repatriation of a substantial portion of undistributed earnings
of certain foreign subsidiaries because we intend to reinvest those earnings indefinitely in our foreign subsidiaries. If these earnings were
distributed into the U.S. in the form of dividends to eBay companies domiciled in the U.S. or otherwise, or if the shares of the relevant foreign
subsidiaries were sold or otherwise transferred, we would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax
credits) and foreign withholding taxes. Further, as a result of certain of our ongoing employment and capital investment actions and
commitments, our income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet
these commitments could adversely impact our provision for income taxes. Additionally, please see the information in "Item 1A: Risk Factors"
under the caption "We may have exposure to greater than anticipated tax liabilities."
From time to time, we engage in certain intercompany transactions and legal entity restructurings. We consider many factors when
evaluating these transactions, including the alignment of our corporate structure with our organizational objectives
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