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Income Taxes
9 Months Ended
Jul. 30, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
In general, the Company’s provision for income taxes differs from the tax computed at the U.S. federal statutory tax rate due to state taxes, the effect of non-U.S. operations being taxed at rates lower than the U.S. federal statutory tax rate, non-deductible stock-based compensation expense, tax credits, and adjustments to unrecognized tax benefits. Earnings of the Company’s subsidiaries outside of the United States primarily relate to its European, Asia Pacific, and Japan businesses.
The Company recorded an income tax benefit for the three months ended July 30, 2016, primarily due to a discrete benefit from reserve releases as a result of reaching a settlement on certain transfer pricing issues with the Internal Revenue Service (“IRS”) and certain expired statute of limitations.
The effective tax rate for the three and nine months ended July 30, 2016, was lower than the U.S. federal statutory tax rate of 35% primarily due to a discrete benefit from reserve releases as a result of reaching a settlement on certain transfer pricing issues with the IRS and benefits from the federal research and development tax credit, which was permanently reinstated retroactive to January 1, 2015, by the passage of the Protecting Americans from Tax Hikes Act of 2015.
The effective tax rate for the nine months ended July 30, 2016, was higher compared with the effective tax rate for the nine months ended August 1, 2015, primarily due to an increase in unrecognized tax benefits related to certain intercompany transactions during the nine months ended July 30, 2016.
The Company’s total gross unrecognized tax benefits, excluding interest and penalties, were $189.1 million as of July 30, 2016. If the total gross unrecognized tax benefits as of July 30, 2016, were recognized in the future, approximately $144.0 million would decrease the Company’s effective tax rate.
The IRS and other tax authorities regularly examine the Company’s income tax returns. In June 2016, the Company reached agreement with the IRS on certain transfer pricing issues in the Company’s federal income tax returns for fiscal years 2009 and 2010. In October 2014, the Geneva Tax Administration issued its final assessments for fiscal years 2003 to 2012, disputing certain of the Company’s transfer pricing arrangements. In November 2014, the Company filed a protest to challenge the final assessments. The Company believes that reserves for unrecognized tax benefits are adequate for all open tax years. The timing of tax examinations, as well as the amounts and timing of related settlements, if any, are highly uncertain. Before the end of fiscal year 2016, it is reasonably possible that either certain audits will conclude or the statutes of limitations relating to certain tax examination periods will expire, or both. After the Company reaches settlement with the tax authorities, the Company expects to record a corresponding adjustment to its unrecognized tax benefits. Taking into consideration the inherent uncertainty as to settlement terms, the timing of payments, and the impact of such settlements on the uncertainty in income taxes, the Company estimates the range of potential decreases in underlying uncertainty in income tax is between $0 and $5 million in the next 12 months.