The components of the provision for income taxes were as follows:
(In millions) | ||||||
---|---|---|---|---|---|---|
Year Ended June 30, | 2010 | 2009 | 2008 | |||
Current taxes: | ||||||
U.S. federal | $ | 4,415 | $ | 3,159 | $ | 4,357 |
U.S. state and local | 357 | 192 | 256 | |||
International | 1,701 | 1,139 | 1,007 | |||
Current taxes | 6,473 | 4,490 | 5,620 | |||
Deferred Taxes | ||||||
Deferred taxes | (220) | 762 | 513 | |||
Provision for income taxes | $ | 6,253 | $ | 5,252 | $ | 6,133 |
U.S. and international components of income before income taxes were as follows: | ||||||
(In millions) | ||||||
Year Ended June 30, | 2010 | 2009 | 2008 | |||
U.S. | $ | 9,575 | $ | 5,529 | $ | 12,682 |
International | 15,438 | 14,292 | 11,132 | |||
Income before income taxes | $ | 25,013 | $ | 19,821 | $ | 23,814 |
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows: |
||||||
Year Ended June 30, | 2010 | 2009 | 2008 | |||
Federal statutory rate | 35.0% | 35.0% | 35.0% | |||
Effect of: | ||||||
Foreign earnings taxed at lower rates | (12.1)% | (9.3)% | (7.0)% | |||
Internal Revenue Service settlement | 0% | 0% | (5.8)% | |||
European Commission fine | 0% | 0% | 2.1% | |||
Other reconciling items, net | 2.1% | 0.8% | 1.5% | |||
Effective rate | 25.0% | 26.5% | 25.8% |
In general, other reconciling items consist of interest, U.S. state income taxes, domestic production deductions, and research credits. In fiscal years 2010, 2009 and 2008, there were no individually significant other reconciling items.
The components of the deferred income tax assets and liabilities were as follows:
(In millions) | ||||
---|---|---|---|---|
June 30, | 2010 | 2009 | ||
Deferred income tax assets: | ||||
Stock-based compensation expense | $ | 1,329 | $ | 2,004 |
Other expense items | 1,696 | 1,595 | ||
Unearned revenue | 556 | 743 | ||
Impaired investments | 289 | 236 | ||
Other revenue items | 80 | 120 | ||
Deferred income tax assets | $ | 3,950 | $ | 4,698 |
Deferred income tax liabilities: | ||||
International earnings | $ | (1,056) | $ | (1,191) |
Unrealized gain on investments | (674) | (516) | ||
Other | (265) | (499) | ||
Deferred income tax liabilities | (1,995) | (2,206) | ||
Net deferred income tax assets | $ | 1,955 | $ | 2,492 |
Reported as: | ||||
Current deferred income tax assets | $ | 2,184 | $ | 2,213 |
Long-term deferred income tax assets (liabilities) | (229) | 279 | ||
Net deferred income tax assets | $ | 1,955 | $ | 2,492 |
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid or recovered.
We have not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences of approximately $29.5 billion resulting from earnings for certain non-U.S. subsidiaries which are permanently reinvested outside the U.S. The unrecognized deferred tax liability associated with these temporary differences is approximately $9.2 billion.
Income taxes paid were $4.1 billion, $6.6 billion, and $5.4 billion in fiscal years 2010, 2009, and 2008, respectively.
As of June 30, 2010, we had $6.5 billion of unrecognized tax benefits of which $5.6 billion, if recognized, would affect our effective tax rate. As of June 30, 2009, we had $5.4 billion of unrecognized tax benefits of which $4.4 billion, if recognized, would affect our effective tax rate.
Interest on unrecognized tax benefits was $193 million, $230 million, and $121 million in fiscal years 2010, 2009 and 2008, respectively. As of June 30, 2010, 2009 and 2008, we had accrued interest related to uncertain tax positions of $747 million, $554 million, and $324 million, respectively, net of federal income tax benefits.
The aggregate changes in the balance of unrecognized tax benefits were as follows:
(In millions) | ||||||
---|---|---|---|---|---|---|
Year Ended June 30, | 2010 | 2009 | 2008 | |||
Balance, beginning of year | $ | 5,403 | $ | 3,195 | $ | 7,076 |
Decreases related to settlements | (57) | (82) | (4,787) | |||
Increases for tax positions related to the current year | 1,012 | 2,203 | 934 | |||
Increases for tax positions related to prior years | 364 | 239 | 66 | |||
Decreases for tax positions related to prior years | (166) | (132) | (80) | |||
Reductions due to lapsed statute of limitations | (14) | (20) | (14) | |||
Balance, end of year | $ | 6,542 | $ | 5,403 | $ | 3,195 |
We are under audit by the IRS for the tax years 2004-2006. We do not believe it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months as we do not believe the examination will be concluded within the next 12 months.
We are subject to income tax in many jurisdictions outside the U.S., and certain jurisdictions are under audit by local tax authorities. The resolutions of these audits are not expected to be material to our financial statements.