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Income Taxes
3 Months Ended
Jun. 30, 2017
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The Company's effective tax rate ("ETR") was 6.5% and 44.4% for the three months ended June 30, 2017 and July 1, 2016, respectively. For the three months ended June 30, 2017, the primary drivers of the ETR were the increase in pre-tax book income from HPES, the global mix of income, excess tax benefits related to employee share-based payment awards and releases of valuation allowances for deferred tax assets of CSC, reduced by foreign inclusions and non-deductible employee compensation. The primary drivers of the ETR for the three months ended July 1, 2016 were the global mix of income and excess tax benefits related to employee share-based payment awards, reduced by non-deductible transaction related costs.

As a result of the Merger with HPES and changes in U.S. cash requirements, a deferred tax liability of $570 million was recorded for U.S. income taxes based on the estimated historical earnings of non-U.S. HPES subsidiaries. In addition, we recorded an estimated liability of $67 million for India dividend distribution tax based on estimated historical earnings of the HPES India subsidiary. These liabilities were recorded as part of acquisition accounting. Other than these amounts, the Company considers the current and accumulated earnings for substantially all non-U.S. subsidiaries to be indefinitely reinvested outside of the U.S. Generally, such amounts would become subject to U.S. taxation upon the remittance of dividends to the U.S. and under certain other circumstances. The Company cannot practically estimate the amount of additional taxes that might be payable on such unremitted earnings.

In connection with the Merger, the Company entered into a tax matters agreement with HPE. HPE generally will be responsible for pre-Merger tax liabilities including adjustments made by tax authorities to HPES U.S. and non-U.S. income tax returns. Likewise, DXC is liable to HPE for income tax receivables and refunds which it receives related to pre-Merger periods. The Company recorded a net payable of $2 million, including $111 million of tax indemnification receivable related to uncertain tax positions, net of related deferred tax benefits, and $113 million of tax indemnification payable related to other tax receivables and payables.

As part of acquisition accounting for the Merger with HPES, DXC recorded uncertain tax liabilities including interest and penalties of $114 million for prior year income taxes, which are indemnified by HPE. There were no other material changes to uncertain tax positions during the three months ended June 30, 2017.

The IRS is examining CSC's federal income tax returns for fiscal 2008 through 2016. With respect to CSC's fiscal 2008 through 2010 federal tax returns, the Company previously entered into negotiations for a resolution through settlement with the IRS Office of Appeals. The IRS examined several issues for this audit that resulted in various audit adjustments. The Company and the IRS Office of Appeals have an agreement in principle as to some but not all of these adjustments. The Company has agreed to extend the statute of limitations associated with this audit through April 30, 2018. In addition, during the first quarter of fiscal 2018, we received a Revenue Agent’s Report with proposed adjustments to CSC's fiscal 2011 through 2013 federal returns. The Company has filed a protest of certain of these adjustments to the IRS Office of Appeals. The IRS is also examining the Company's fiscal 2014 through 2016 federal income tax returns. The Company has not received any adjustments for this cycle. We continue to believe that our tax positions are more-likely-than-not sustainable and that the Company will ultimately prevail.

In addition, the Company may settle certain other tax examinations, have lapses in statutes of limitations, or voluntarily settle income tax positions in negotiated settlements for different amounts than the Company has accrued as uncertain tax positions. The Company may need to accrue and ultimately pay additional amounts for tax positions that previously met a more-likely-than-not standard if such positions are not upheld. Conversely, the Company could settle positions by payment with the tax authorities for amounts lower than those that have been accrued or extinguish a position through payment. The Company believes the outcomes which are reasonably possible within the next 12 months may result in a reduction in liability for uncertain tax positions of $20 million to $48 million, excluding interest, penalties, and tax carry-forwards.