Note 12: Income Taxes

Provision for taxes

HP's effective tax rate was 18.7% and 2.2% for the three months ended July 31, 2013 and 2012, respectively, and 21.1% and (10.3)% for the nine months ended July 31, 2013 and 2012, respectively. HP's effective tax rate increased in the three and nine month periods ended July 31, 2013 due primarily to the absence of net tax effects in the current period resulting from the impairment of goodwill and purchased intangible assets and lower restructuring charges. HP's effective tax rate generally differs from the U.S. federal statutory rate of 35% due to favorable tax rates associated with certain earnings from HP's operations in lower-tax jurisdictions throughout the world. HP has not provided U.S. taxes for all of such earnings because HP plans to reinvest some of those earnings indefinitely outside the United States.

In the three months ended July 31, 2013, HP recorded discrete items resulting in a net tax charge of $63 million, which included tax benefits of $13 million on restructuring and acquisition-related charges and tax charges of $76 million for various adjustments to estimated tax provisions, uncertain tax benefits and valuation allowances of U.S. and foreign jurisdictions. In the nine months ended July 31, 2013, HP recorded discrete items resulting in a net tax benefit of $40 million, which included tax benefits of $76 million on restructuring and acquisition-related charges and tax benefits of $64 million for various adjustments to estimated tax provisions, uncertain tax benefits and valuation allowances of U.S. and foreign jurisdictions. In addition, in January 2013, the American Taxpayer Relief Act of 2012 was signed into law. In the first quarter of fiscal 2013, HP recorded a tax benefit of $50 million arising from the retroactive research and development credit provided by that legislation. HP also recorded a tax charge of $150 million in the first quarter of fiscal 2013 related to a past uncertain tax position, increasing the effective tax rate.

In the three and nine months ended July 31, 2012, HP recorded discrete items with a net tax benefit of $670 million and $744 million, respectively, decreasing the effective tax rate. These amounts included net tax benefits of $564 million and $614 million from restructuring and acquisition charges recorded for the three and nine months ended July 31, 2012, respectively. Also included in the three and nine months ended July 31, 2012 was an $823 million discrete income tax charge to record U.S. valuation allowances on certain deferred tax assets related to the enterprise services business. The U.S. enterprise services business files a U.S. tax return separate from HP. As a result of the 2012 restructuring plan costs accompanied by market conditions and business trends, HP recognized a valuation allowance for the net deferred tax assets of the U.S. enterprise services business. In addition, HP recorded $827 million of income tax benefits that were recognized from reversals of deferred income tax liabilities attributed to temporary basis differences related to certain foreign subsidiaries that were reduced by the impairment charges for goodwill and purchased intangible assets. There were also other miscellaneous discrete tax benefits in the three and nine months ended July 31, 2012 of $102 million and $126 million, respectively.

As of July 31, 2013, the amount of gross unrecognized tax benefits was $3.0 billion, of which up to $1.6 billion would affect HP's effective tax rate if realized. HP recognizes interest income from favorable settlements and income tax receivables and interest expense and penalties accrued on unrecognized tax benefits within income tax expense. As of July 31, 2013, HP had accrued a net payable of $169 million for interest and penalties.

HP engages in continuous discussions and negotiations with taxing authorities regarding tax matters in various jurisdictions. HP does not expect complete resolution of any Internal Revenue Service 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 transfer pricing and other matters. Accordingly, HP believes it is reasonably possible that its existing unrecognized tax benefits may be decreased by an amount up to $129 million within the next 12 months.

In the Consolidated Condensed Financial Statements, current and long-term deferred tax assets and deferred tax liabilities are presented as follows:

	July 31, 2013			October 31, 2012

	In millions
Current deferred tax assets	$	3,841		$	3,783
Current deferred tax liabilities		(324	)		(230	)
Long-term deferred tax assets		1,541			1,581
Long-term deferred tax liabilities		(3,582	)		(2,948	)

Net deferred tax position	$	1,476		$	2,186