Taxes on Earnings

12 Months Ended

Oct. 31, 2022

Income Tax Disclosure [Abstract]

Taxes on Earnings

Taxes on Earnings

Provision for Taxes

The domestic and foreign components of earnings before taxes were as follows:

	For the fiscal years ended October 31
h	2022		2021		2020
	In millions
U.S.	$	1,406	$	4,724	$	874
Non-U.S.	2,918		2,844		2,337
	$	4,324	$	7,568	$	3,211

The provision for (benefit from) taxes on earnings was as follows:

	For the fiscal years ended October 31
	2022		2021		2020
	In millions
U.S. federal taxes:
Current	$	272	$	1,112	$	12
Deferred	27		(458)		(68)
Non-U.S. taxes:
Current	338		420		319
Deferred	503		(173)		137
State taxes:
Current	9		78		23
Deferred	43		48		(27)
	$	1,192	$	1,027	$	396

The differences between the U.S. federal statutory income tax rate and HP’s effective tax rate were as follows:

	For the fiscal years ended October 31
	2022		2021		2020
U.S. federal statutory income tax rate from continuing operations	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	1.3	%	0.9	%	1.4	%
Impact of foreign earnings including GILTI and FDII, net	(7.9)	%	(3.9)	%	(5.2)	%
Valuation allowances	0.3	%	(3.5)	%	1.5	%
Uncertain tax positions and audit settlements	2.8	%	0.9	%	(3.9)	%
Impact of internal reorganization	9.4	%	(1.2)	%	—	%
Other, net	0.7	%	(0.6)	%	(2.5)	%
	27.6	%	13.6	%	12.3	%

The jurisdictions with favorable tax rates that have the most significant effective tax rate impact in the periods presented include Singapore, Malaysia, and Puerto Rico. HP has elected to treat GILTI inclusions as period costs.

In fiscal year 2022, HP recorded $456 million of net income tax charges related to discrete items in the provision for taxes. This amount included $649 million of tax effects related to internal reorganization, $107 million of uncertain tax position charges, $55 million related to withholding taxes on undistributed foreign earnings, $51 million related to audit settlements in various jurisdictions and $26 million of other net tax charges. These charges were partially offset by income tax benefits of $189 million related to the filing of tax returns in various jurisdictions, $156 million related to changes in valuation allowances, $44 million related to restructuring charges, and $43 million related to Poly acquisition charges. In the fiscal year 2022, HP

recorded excess tax benefits of $33 million associated with stock options, restricted stock units and performance-adjusted restricted stock.

In fiscal year 2021, HP recorded $4 million of net income tax charges related to discrete items in the provision for taxes. This amount included income tax charges of $533 million related to the Oracle litigation proceeds and $15 million of uncertain tax position charges. These charges were offset by income tax benefits of $368 million related to changes in valuation allowances, $89 million of tax effects related to internal reorganization, $51 million related to restructuring charges,$16 million related to the filing of tax returns in various jurisdictions, $11 million related to acquisition charges, and $9 million of other net tax benefits. In fiscal year 2021, excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

In fiscal year 2020, HP recorded $245 million of net income tax benefits related to discrete items in the provision for taxes. This amount included tax benefits related to audit settlements of $124 million in various jurisdictions and $84 million related to restructuring benefits. Additionally, HP recorded benefits of $20 million related to proxy contest costs and $17 million of other net tax benefits. In fiscal year 2020, excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

As a result of certain employment actions and capital investments HP has undertaken, income from manufacturing and services in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, through 2029. The gross income tax benefits attributable to these actions and investments were estimated to be $313 million ($0.30 diluted net EPS) in fiscal year 2022, $385 million ($0.32 diluted net EPS) in fiscal year 2021 and $344 million ($0.24 diluted net EPS) in fiscal year 2020.

Uncertain Tax Positions

A reconciliation of unrecognized tax benefits is as follows:

	For the fiscal years ended October 31
	2022		2021		2020
	In millions
Balance at beginning of year	$	829	$	830	$	934
Increases:
For current year’s tax positions	26		62		64
For prior years’ tax positions	299		92		71
Decreases:
For prior years’ tax positions	(60)		(92)		(89)
Statute of limitations expirations	(5)		(9)		(2)
Settlements with taxing authorities	(44)		(54)		(148)
Balance at end of year	$	1,045	$	829	$	830

As of October 31, 2022, the amount of gross unrecognized tax benefits was $1.0 billion, of which up to $783 million would affect HP’s effective tax rate if realized. Total gross unrecognized tax benefits increased by $216 million for the twelve months ended October 31, 2022. 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 Statements of Earnings. As of October 31, 2022, 2021 and 2020, HP had accrued $64 million, $70 million and $34 million, respectively, for interest and penalties.

HP engages in continuous discussions and negotiations with taxing authorities regarding tax matters in various jurisdictions. HP expects 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 $38 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 60 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 IRS is conducting an audit of HP’s 2018 and 2019 income tax returns.

With respect to major state and foreign tax jurisdictions, HP is no longer subject to tax authority examinations for years prior to 2002. No material tax deficiencies have been assessed in major state or foreign tax jurisdictions related to ongoing audits as of October 31, 2022.

HP believes it has provided adequate reserves for all tax deficiencies or reductions in tax benefits that could result from federal, state and foreign tax audits. HP regularly assesses the likely outcomes of these audits in order to determine the appropriateness of HP’s tax provision. HP adjusts its uncertain tax positions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular audit. However, income tax audits are inherently unpredictable and there can be no assurance that HP will accurately predict the outcome of these audits. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in the Provision for taxes and therefore the resolution of one or more of these uncertainties in any particular period could have a material impact on net income or cash flows.

HP has not provided for U.S. federal income and foreign withholding taxes on $5.1 billion of undistributed earnings from non-U.S. operations as of October 31, 2022 because HP intends to reinvest such earnings indefinitely outside of the United States. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

Deferred Income Taxes

The significant components of deferred tax assets and deferred tax liabilities were as follows:

	As of October 31
	2022		2021
	In millions
Deferred tax assets:
Loss and credit carryforwards	$	7,601	$	7,630
Intercompany transactions—excluding inventory	799		791
Fixed assets	118		136
Warranty	170		207
Employee and retiree benefits	133		281
Deferred revenue	221		192
Capitalized research and development	654		454
Intangible assets	—		474
Operating lease liabilities	238		227
Investment in partnership	70		95
Cash flow hedges	—		8
Other	352		448
Gross deferred tax assets	10,356		10,943
Valuation allowances	(7,592)		(7,749)
Total deferred tax assets	2,764		3,194
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries	(75)		(42)
Right-of-use assets from operating leases	(227)		(215)
Intangible assets	(261)		—
Cash flow hedges	(155)		—
Other	—		(79)
Total deferred tax liabilities	(718)		(336)
Net deferred tax assets	$	2,046	$	2,858

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

	As of October 31
	2022		2021
	In millions
Deferred tax assets	$	2,167	$	2,915
Deferred tax liabilities	(121)		(57)
Total	$	2,046	$	2,858

 As of October 31, 2022, HP had recorded deferred tax assets for net operating loss (“NOL”) carryforwards as follows:

	Gross NOLs		Deferred Taxes on NOLs		Valuation allowance		Initial Year of Expiration
	In millions
Federal	$	291	$	63	$	(11)	2023
State	2,680		178		(71)		2023
Foreign	25,948		7,213		(7,113)		2033
Balance at end of year	$	28,919	$	7,454	$	(7,195)

As of October 31, 2022, HP had recorded deferred tax assets for various tax credit carryforwards as follows:

	Carryforward		Valuation Allowance		Initial Year of Expiration
	In millions
Tax credits in state and foreign jurisdictions	$	312	$	(55)	2023
U.S. R&D and other credits	11		—		2031
Balance at end of year	$	323	$	(55)

Deferred Tax Asset Valuation Allowance

The deferred tax asset valuation allowance and changes were as follows:

	For the fiscal years ended October 31
	2022		2021		2020
	In millions
Balance at beginning of year	$	7,749	$	7,951	$	7,930
Income tax (benefit) expense	(274)		(168)		49
Goodwill, other comprehensive loss (income), currency translation and charges to other accounts	117		(34)		(28)
Balance at end of year	$	7,592	$	7,749	$	7,951

Gross deferred tax assets as of October 31, 2022, 2021, and 2020 were reduced by valuation allowances of $7.6 billion, $7.7 billion and $8.0 billion, respectively. In fiscal year 2022, the deferred tax asset valuation allowance decreased by $157 million primarily due to foreign net operating losses, U.S. deferred tax assets that are anticipated to be realized at a lower effective rate than the federal statutory tax rate, and the impact of the acquisition of Poly on the company’s deferred tax assets. In fiscal year 2021, the deferred tax asset valuation allowance decreased by $202 million primarily due to foreign net operating losses and U.S. deferred tax assets that are anticipated to be realized at a lower effective rate due to certain future U.S. international tax reform implications. In fiscal year 2020, the deferred tax asset valuation allowance increased by $21 million primarily associated with foreign net operating losses and U.S. deferred tax assets that are anticipated to be realized at a lower effective rate than the federal statutory tax rate due to certain future U.S. international tax reform implications.