Income Taxes (Notes)

3 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense decreased to $134 for the three months ended September 30, 2012, as compared to $2,107 for the three months ended September 30, 2011. The change in the income tax expense for the three months ended September 30, 2012 as compared to the same period in 2011 is primarily attributable to the timing of our pre-tax earnings for the three months ended September 30, 2012 relative to our full year forecasted pre-tax earnings. By comparison, a larger percentage of pre-tax earnings were realized in the three months ended September 30, 2011 relative to the full year 2011 earnings, thus resulting in a higher tax expense in the prior year period.

The change in the effective tax rate from the same prior year period is largely due to the timing of our pre-tax earnings to date relative to our full year forecasted pre-tax earnings and the growth in our operating expenses, which form the basis upon which our transfer pricing agreements determine pre-tax profits and related income tax expense for most of our subsidiaries. The intercompany services and related agreements among Vistaprint N.V. and its subsidiaries ensure that most of our subsidiaries realize profits based on their operating expenses, which results in taxable profits regardless of the level of consolidated pre-tax income or loss. Since our income tax expense is mainly a function of our operating expenses and cost-based transfer pricing methodologies and not a function of our consolidated pre-tax income, our effective tax rate will typically vary inversely to changes in our consolidated pre-tax income.

As of September 30, 2012, we had a liability for unrecognized tax benefits included in the balance sheet of approximately $6,037, including accrued interest of $325. There have been no significant changes to these amounts for the three months ended September 30, 2012. Of the total amount of unrecognized tax benefits, approximately $2,697 will reduce the effective tax rate if recognized. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes.

We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. Generally, the years 2005 through 2012 remain open for examination by the tax authorities.

Two of our subsidiaries, Vistaprint Limited (domiciled in Bermuda) and Vistaprint USA, Incorporated are currently under income tax audit by the United States Internal Revenue Service (“IRS”). On August 16, 2012, Vistaprint Limited received a Revenue Agent's Report (“RAR”) from the IRS reflecting tax assessments for the 2007 to 2009 tax years. The issue in dispute is the imposition of U.S. federal income tax on effectively connected income associated with the IRS' assertion that Vistaprint Limited has a U.S. Trade or Business. On September 17, 2012, we submitted to the IRS Examination team a written protest stating our formal disagreement with the facts and technical conclusions presented in the RAR and requesting the case to be heard by the IRS Office of Appeals. We anticipate the protest will be officially filed with the Appeals office within the next few months. Based on the technical merits of this matter, we believe that the Company's tax positions will be sustained. We plan to pursue all administrative and, if necessary, judicial remedies with respect to this matter.

In April 2011, Vistaprint USA Incorporated received an RAR for tax years 2007 to 2010 from the IRS that included one unagreed issue which was included in a formal protest submitted for consideration to the IRS Appeals office. Upon review of this protest and as a result of additional discussion with the field examination team, agreement was reached during the quarter ended June 30, 2012. We anticipate receipt of a revised RAR from the IRS in the second quarter of fiscal 2013 that we expect will conclude this audit.

One of our Canadian subsidiaries, Vistaprint North American Services Corp., is currently under federal income tax examination in Canada for tax years 2005 and 2006. The Canada Revenue Agency (“CRA”) has notified us that it proposes to reassess tax year 2006, adjusting the transfer price for the contract printing services provided to Vistaprint Limited. Upon receipt of the Notice of Reassessment, we will file a Notice of Objection to have our position heard before Canadian Appeals. Based on the technical merits of this matter, we believe that the Company's tax position will be sustained.

Lastly, Vistaprint USA, Incorporated and Vistaprint Limited are both currently under income tax audit by the Massachusetts Department of Revenue. The tax years under examination are 2005 to 2008 and 2005 to 2011, respectively. These audits are still at the level of the field examination phase.

We believe that our income tax reserves associated with these matters are adequate as the positions reported on our tax returns will be sustained on their technical merits. However, final resolution is uncertain and there is a possibility that final resolution could have a material impact on our financial condition, results of operations or cash flows.