Taxes on Earnings

6 Months Ended

Apr. 30, 2020

Income Tax Disclosure [Abstract]

Taxes on Earnings

Taxes on Earnings

Provision for Taxes

HP’s effective tax rate was 7.6% and 11.4% for the three months ended April 30, 2020 and 2019, respectively and 15.4% and 11.1% for the six months ended April 30, 2020 and 2019, respectively. The difference between the U.S. federal statutory tax rate of 21% and HP’s effective tax rate for the three and six months ended April 30, 2020 is primarily due to audit settlements in various jurisdictions and favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world. For the three and six months ended April 30, 2019, HP’s effective tax rate generally differs from the U.S. federal statutory rate of 21% due to favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world.

During the three and six months ended April 30, 2020, HP recorded $59 million and $66 million, respectively, of net tax benefits related to discrete items in the provision for taxes. These amounts included tax benefits of $42 million and $40 million related to audit settlements in various jurisdictions, $11 million and $17 million related to acquisition charges, and $7 million and $55 million related to restructuring charges for the three and six months ended April 30, 2020, respectively. These benefits were partially offset by uncertain tax position charges of $3 million and $51 million for the three and six months ended April 30, 2020 respectively. For the three and six months ended April 30, 2020, excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

During the three and six months ended April 30, 2019, HP recorded $40 million and $49 million, respectively, of net tax benefits related to discrete items in the provision for taxes. These amounts included tax benefits of $42 million and $48 million related to one-time items for the three and six months ended April 30, 2019, respectively, and $14 million and$26 million related to restructuring charges for the three and six months ended April 30, 2019, respectively. These benefits were partially offset by uncertain tax position charges of$12 million and $32 million for the three and six months ended April 30, 2019, respectively, and other charges of $4 million and $14 million for the three and six months ended April 30, 2019, respectively. The six months ended April 30, 2019 also included a tax benefit of $21 million related to final tax reform adjustments. In addition to the discrete items mentioned above, HP recorded $20 million of excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units for the six months ended April 30, 2019.

Uncertain Tax Positions

As of April 30, 2020, the amount of gross unrecognized tax benefits was $965 million, of which up to $818 million would affect HP’s effective tax rate if realized. Total gross unrecognized tax benefits increased by $36 million for the six months ended April 30, 2020. HP recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in the provision for taxes in the Consolidated Condensed Statements of Earnings. As of April 30, 2020 and 2019, HP had accrued $29 million and $193 million, respectively, for interest and penalties.

HP engages in continuous discussions and negotiations with taxing authorities regarding tax matters in various jurisdictions. HP expects to complete resolution of certain tax years with various tax authorities within the next 12 months. HP believes it is reasonably possible that its existing gross unrecognized tax benefits may be reduced by up to $86 million within the next 12 months, affecting HP’s effective tax rate if realized.

HP is subject to income tax in the United States and approximately 58 other countries and is subject to routine corporate income tax audits in many of these jurisdictions. In addition, HP is subject to numerous ongoing audits by federal, state and foreign tax authorities. The U.S. Internal Revenue Service (“IRS”) is conducting an audit of HP’s 2016 income tax return.