Income Taxes

The components of the provision for income taxes are as follows:



	Year Ended
	April 3, 2015			March 28, 2014			March 29, 2013
	(Dollars in millions)
Current:
Federal	$	72		$	111		$	104
State	13			23			23
International	115			78			87
	200			212			214
Deferred:
Federal	20			36			27
State	(3		)	17			5
International	(2		)	(7		)	5
	15			46			37
Provision for income taxes	$	215		$	258		$	251

Pretax income from international operations was $617 million, $612 million, and $652 million for fiscal 2015, 2014, and 2013, respectively.

The difference between our effective income tax and the federal statutory income tax is as follows:



	Year Ended
	April 3, 2015			March 28, 2014			March 29, 2013
	(Dollars in millions)
Federal statutory tax	$	382		$	405		$	351
State taxes, net of federal benefit	20			26			25
Foreign earnings taxed at less than the federal rate	(127		)	(131		)	(96		)
Domestic production activities deduction	(12		)	(14		)	(12		)
Federal research and development credit	(11		)	(6		)	(10		)
Valuation allowance (decrease) increase	4			(3		)	—
Nondeductible separation costs	11			—			—
Change in uncertain tax positions	(57		)	(26		)	(9		)
Other, net	5			7			2
Provision for income taxes	$	215		$	258		$	251

The principal components of deferred tax assets are as follows:



	Year Ended
	April 3, 2015			March 28, 2014
	(Dollars in millions)
Deferred tax assets:
Tax credit carryforwards	$	31		$	38
Net operating loss carryforwards of acquired companies	57			79
Other accruals and reserves not currently tax deductible	173			128
Deferred revenue	74			92
Loss on investments not currently tax deductible	16			16
State income taxes	14			19
Stock-based compensation	45			31
Gross deferred tax assets	410			403
Valuation allowance	(60		)	(56		)
Deferred tax assets, net of valuation allowance	$	350		$	347
Deferred tax liabilities:
Property and equipment	(88		)	(76		)
Goodwill	(54		)	(29		)
Intangible assets	(24		)	(48		)
Unremitted earnings of foreign subsidiaries	(273		)	(399		)
Prepaids and deferred expenses	(42		)	(30		)
Other	—			(7		)
Total deferred tax liabilities	$	(481	)	$	(589	)
Net deferred tax assets (liabilities)	$	(131	)	$	(242	)

The valuation allowance provided against our deferred tax assets as of April 3, 2015 is mainly attributable to net operating loss and tax credit carryforwards of acquired companies, state tax credits, and net operating losses in foreign jurisdictions. The valuation allowance increased by a net of $4 million in fiscal 2015 due to changes in corresponding deferred tax assets primarily related to state tax credit carryforwards.

As of April 3, 2015, we have U.S. federal net operating losses attributable to various acquired companies of approximately $60 million, which, if not used, will expire between fiscal 2018 and 2032. These net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code §382, but are expected to be fully realized. Furthermore, we have U.S. state net operating loss and credit carryforwards attributable to various acquired companies of approximately $161 million and $39 million, respectively. If not used, our U.S. state net operating losses will expire between fiscal 2016 and 2032 and the majority of our U.S. state credit carryforwards can be carried forward indefinitely. In addition, we have foreign net operating loss carryforwards attributable to various acquired foreign companies of approximately $183 million net of valuation allowances, the majority of which, under current applicable foreign tax law, can be carried forward indefinitely.

In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income, as measured by the current and prior two years; we have strong, consistent taxpaying history; we have substantial U.S. federal income tax carryback potential; and we have substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities. We have concluded that this positive evidence outweighs the negative evidence and, thus, that the deferred tax assets as of April 3, 2015 are realizable on a “more likely than not” basis.

As of April 3, 2015, no provision has been made for federal or state income taxes on $3.6 billion of cumulative unremitted earnings of certain of our foreign subsidiaries since we plan to indefinitely reinvest these earnings. As of April 3, 2015, the unrecognized deferred tax liability for these earnings was approximately $1 billion.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows:



	Year Ended
	April 3, 2015			March 28, 2014			March 29, 2013
	(Dollars in millions)
Balance at beginning of year	$	282		$	412		$	619
Settlements with tax authorities	(150		)	(122		)	(114		)
Lapse of statute of limitations	(13		)	(11		)	(98		)
Increase related to prior period tax positions	147			27			11
Decrease related to prior period tax positions	(96		)	(50		)	(20		)
Increase related to current year tax positions	23			26			14
Net increase (decrease)	$	(89	)	$	(130	)	$	(207	)
Balance at end of year	$	193		$	282		$	412

There was a change of $89 million in gross unrecognized tax benefits during the fiscal year as disclosed above. This gross liability does not include offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, interest deductions, and state income taxes.

Of the total unrecognized tax benefits at April 3, 2015, $200 million, if recognized, would favorably affect the Company’s effective tax rate, while a $7 million offsetting impact would affect the cumulative translation adjustments. However, one or more of these unrecognized tax benefits could be subject to a valuation allowance if and when recognized in a future period, which could impact the timing of any related effective tax rate benefit.

At April 3, 2015, before any tax benefits, we had $18 million of accrued interest and penalties on unrecognized tax benefits. Interest included in our provision for income taxes was a benefit of approximately $12 million, offset by accruals of $6 million for the year ended April 3, 2015. If the accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced in the period that such determination is made, and reflected as a reduction of the overall income tax provision.

We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. Our most significant tax jurisdictions are the U.S., Ireland, and Singapore. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. Our fiscal years 2014 and 2015 remain subject to examination by the Internal Revenue Service (“IRS”) for U.S. federal tax purposes. Our fiscal years prior to 2014 have been settled and closed with the IRS. Our 2011 through 2015 fiscal years remain subject to examination by the appropriate governmental agencies for Irish tax purposes, and our 2014 through 2015 fiscal years remain subject to examination by the appropriate governmental agencies for Singapore tax purposes. Other significant jurisdictions include California, Japan, the UK, India and Australia. As of April 3, 2015, we have effectively settled Symantec U.S. federal income taxes for the fiscal years 2009 through 2013. In addition, we are under examination by the California Franchise Tax Board for the Symantec California income taxes for the 2009 through 2010 tax years. We are also under examination by the Indian income tax authorities for fiscal years 2004 through 2014 as well as the Australian income tax authorities for fiscal years 2011 through 2013.

In fiscal 2013, we resolved an IRS audit for the Veritas 2002 through 2005 tax years and executed the final closing agreement. Accordingly, we recorded a further tax benefit of $3 million in fiscal 2013 based on the closing agreement. We also amended our state tax returns for the Veritas 2002 through 2005 tax years in fiscal 2013 to reflect the adjustments in the closing agreement and remeasured our state liability resulting in a benefit of $7 million.

On September 3, 2013, we settled and effectively settled matters with the IRS for the Symantec 2005 through 2008 fiscal years. The result of the settlements, effective settlements, and re-measurements resulted in a reduction in the balance of our gross unrecognized tax benefits in fiscal year 2014 of $122 million.

On March 18, 2015, we settled and effectively settled matters with the IRS for the Symantec 2009 through 2013 fiscal years. The settlement and effective settlement resulted in a benefit to tax expense in fiscal year 2015 of $59 million. Additionally, the Company settled transfer price related matters of $158 million, a portion of which was accounted for against deferred tax liabilities on unremitted foreign earnings. The Company has paid in $155 million to cover the final tax and interest liability on the settlement.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months by $44 million. Depending on the nature of the settlement or expiration of statutes of limitations, we estimate $44 million could affect our income tax provision and therefore benefit the resulting effective tax rate.

We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions.