Taxes on Earnings

6 Months Ended

Apr. 30, 2020

Provision for Taxes

The Company's effective tax rate was 9.9% and 4.8% for the three months ended April 30, 2020 and 2019, respectively, and 8.4% and 45.6% for the six months ended April 30, 2020 and 2019, respectively. The effective tax rates for the three and six months ended April 30, 2020 differed from the statutory tax rate due to favorable tax rates associated with certain earnings from the Company’s operations in lower tax jurisdictions throughout the world, tax rate changes, and the effects of the non-deductible goodwill impairment. The effective tax rates for the three and six months ended April 30, 2019 were significantly impacted by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Company's effective tax rate is based on forecasted annual results which may fluctuate significantly through the remainder of fiscal 2020 due to the uncertain economic impact of COVID-19 on the Company's operating results.

For the three and six months ended April 30, 2020, the Company recorded $151 million and $167 million of net income tax benefits, respectively, related to various items discrete to the period. For the three months ended April 30, 2020, this amount

primarily included $57 million of income tax benefits related to Indian distribution tax rate changes, $48 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, and $35 million of income tax benefits related to the change in pre-Separation tax liabilities for which the Company shares joint and several liability with HP Inc. and for which the Company is indemnified by HP Inc. For the six months ended April 30, 2020, the amount primarily included $57 million of income tax benefits related to Indian distribution tax rate changes, $56 million of income tax benefits related to the change in pre-Separation tax liabilities for which the Company shares joint and several liability with HP Inc. and for which the Company is indemnified by HP Inc., and $48 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges.

For the three and six months ended April 30, 2019, the Company recorded $45 million of net income tax benefits and $383 million of net income tax charges, respectively, related to various items discrete to the period. For the three months ended April 30, 2019, this amount primarily included $27 million of income tax benefits on restructuring charges, and acquisition, disposition and other related charges and $24 million of income tax benefits related to changes in U.S. federal and state valuation allowances as a result of impacts of the Tax Act, partially offset by $10 million of income tax charges related to the change in pre-Separation tax liabilities for which the Company shared joint and several liability with HP Inc. For the six months ended April 30, 2019, the amount primarily included $351 million of income tax charges related to changes in U.S. federal and state valuation allowances as a result of impacts of the Tax Act, $44 million of income tax charges related to the change in pre-Separation tax liabilities for which the Company shares a joint and several liability with HP Inc., and $40 million of income tax charges related to future withholding tax costs on distributions of earnings, partially offset by $57 million of income tax benefits on restructuring charges, and acquisition, disposition and other related charges.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted into law in response to COVID-19. The CARES Act, among other things, provides tax relief to businesses, including the deferral of certain payroll taxes, relief for retaining employees, and other income tax provisions. In addition to the CARES Act, governments around the world are also enacting comparable legislation to address COVID-19 economic impacts. The effects of these legislative changes were not material to the Condensed Consolidated Financial Statements for the three and six months ended April 30, 2020.

Uncertain Tax Positions

As of April 30, 2020 and October 31, 2019, the amount of unrecognized tax benefits was $2.2 billion and $2.3 billion, respectively, of which up to $705 million and $772 million, respectively, would affect the Company's effective tax rate if realized as of their respective periods.

The Company recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in Benefit (provision) for taxes in the Condensed Consolidated Statements of Earnings. The Company recognized $20 million of interest income and $6 million of interest expense for the three months ended April 30, 2020 and 2019, respectively, and $25 million of interest income and $31 million of interest expense for the six months ended April 30, 2020 and 2019, respectively. As of April 30, 2020 and October 31, 2019, the Company had $104 million and $129 million, respectively, recorded for interest and penalties in the Condensed Consolidated Balance Sheets.

The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. The Company does not expect complete resolution of any audit cycle within the next 12 months. However, it is reasonably possible that certain federal, foreign and state tax issues may be concluded in the next 12 months, including issues involving intercompany transactions, joint and several tax liabilities and other matters. Accordingly, the Company believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $77 million within the next 12 months.

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities included in the Condensed Consolidated Balance Sheets were as follows:


	As of
	April 30, 2020		October 31, 2019
	In millions
Deferred tax assets	$	1,520	$	1,515
Deferred tax liabilities	(253)		(311)
Deferred tax assets net of deferred tax liabilities	$	1,267	$	1,204