Taxes on Earnings

12 Months Ended

Oct. 31, 2021

Income Tax Disclosure [Abstract]

Taxes on Earnings

Taxes on Earnings

Provision for Taxes

The domestic and foreign components of Net earnings (loss) from operations before taxes were as follows:

	For the fiscal years ended October 31,
	2021		2020		2019
	In millions
U.S.	$	(1,128)	$	(2,008)	$	(1,067)
Non-U.S.	4,715		1,566		2,620
	$	3,587	$	(442)	$	1,553

The increase in the foreign earnings from fiscal 2020 to fiscal 2021 was primarily a result of the income from the Itanium litigation judgment.

The (Provision) benefit for taxes on Net earnings (loss) from operations were as follows:

	For the fiscal years ended October 31,
	2021		2020		2019
	In millions
U.S. federal taxes:
Current	$	(26)	$	55	$	763
Deferred	79		149		(1,046)
Non-U.S. taxes:
Current	(305)		(284)		(246)
Deferred	116		133		(101)
State taxes:
Current	4		55		58
Deferred	(28)		12		68
	$	(160)	$	120	$	(504)

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

	For the fiscal years ended October 31,
	2021		2020(1)		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	0.7	%	0.9	%	(0.1)	%
Lower rates in other jurisdictions, net	(7.6)	%	(2.3)	%	(7.3)	%
Valuation allowance	(10.0)	%	20.8	%	5.8	%
U.S. permanent differences	3.6	%	(3.4)	%	6.0	%
U.S. R&D credit	(1.3)	%	8.4	%	(2.3)	%
Uncertain tax positions	(0.9)	%	7.6	%	(14.3)	%
Goodwill impairment	—	%	(41.2)	%	—	%
Tax law changes	(1.1)	%	15.5	%	24.5	%
Other, net	0.1	%	(0.2)	%	(0.8)	%
	4.5	%	27.1	%	32.5	%

(1)Positive numbers represent tax benefits and negative numbers represent tax expense as the Company recorded income tax benefit on a pretax loss.

The jurisdictions with favorable tax rates that had the most significant impact on the Company's effective tax rate in the periods presented include Puerto Rico and Singapore.

In fiscal 2021, the Company recorded $294 million of net income tax benefits related to items discrete to the year. These amounts primarily included $180 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, $157 million of income tax benefits related to releases of foreign valuation allowances, $39 million of income tax benefits related to tax rate changes on deferred taxes, and $32 million of income tax benefits related to the change in pre-Separation tax liabilities, primarily those for which the Company shares joint and several liability with HP Inc. and for which the Company is indemnified by HP Inc. These benefits were partially offset by $337 million of net income tax charges associated with income from the Itanium litigation judgment, against which $244 million of income tax attributes previously subject to a valuation allowance were utilized, resulting in a net tax expense of $93 million.

In fiscal 2020, the Company recorded $362 million of net income tax benefits related to items discrete to the year. These amounts primarily included $174 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, $66 million of income tax benefits related to the change in pre-Separation tax liabilities, primarily those for which the Company shared joint and several liability with HP Inc. and for which the Company is indemnified by HP Inc., $57 million of income tax benefits related to Indian distribution tax rate changes, and $40 million of income tax benefits related to tax rate changes on deferred taxes.

In fiscal 2019, the Company recorded $152 million of net income tax charges related to items discrete to the year. These amounts primarily included $488 million of net income tax charges related to changes in U.S. federal and state valuation allowances primarily as a result of impacts of the Tax Act and $40 million of income tax charges related to future withholding costs on potential intercompany distributions of earnings, the effects of which were partially offset by $274 million of income tax benefits related to the change in pre-Separation tax liabilities for which the Company shared joint and several liability with HP Inc., and $104 million of income tax benefits on transformation costs, and acquisition, disposition and other related charges.

As a result of certain employment actions and capital investments the Company has undertaken, income from manufacturing and services in certain countries is subject to reduced tax rates through 2037. The gross foreign income tax benefits attributable to these actions and investments were $889 million ($0.67 diluted net EPS) in fiscal 2021, $521 million ($0.40 diluted net EPS) in fiscal 2020, and $837 million ($0.61 diluted net EPS) in fiscal 2019. Refer to Note 16, "Net Earnings Per Share" for details on shares used to compute diluted net EPS.

Uncertain Tax Positions

A reconciliation of unrecognized tax benefits is as follows:

	As of October 31,
	2021		2020		2019
	In millions
Balance at beginning of year	$	2,159	$	2,269	$	8,826
Increases:
For current year's tax positions	24		27		43
For prior years' tax positions	64		40		37
Decreases:
For prior years' tax positions	(31)		(71)		(17)
Statute of limitations expiration	(44)		(17)		(38)
Settlements with taxing authorities	(15)		(53)		(7)
Settlements related to joint and several positions of former Parent	(26)		(36)		(6,575)
Balance at end of year	$	2,131	$	2,159	$	2,269

Up to $688 million, $731 million and $772 million of Hewlett Packard Enterprise's unrecognized tax benefits at October 31, 2021, 2020 and 2019, respectively, would affect the Company's effective tax rate if realized.

Hewlett Packard Enterprise recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in (Provision) benefit for taxes in the Consolidated Statements of Earnings. The Company recognized $17 million of interest expense, $10 million of interest income, and $13 million of interest income in fiscal 2021, 2020, and 2019, respectively. As of October 31, 2021 and 2020, the Company had accrued $136 million and $119 million, respectively, for interest and penalties in the Consolidated Balance Sheets.

Hewlett Packard Enterprise is subject to income tax in the U.S. and approximately 90 other countries and is subject to routine corporate income tax audits in many of these jurisdictions.

With the resolution of the 2013 through 2015 U.S. Internal Revenue Service ("IRS") tax audits of its former parent in fiscal 2019, Hewlett Packard Enterprise is no longer subject to U.S. federal tax audits for years prior to 2016. With respect to major state and foreign tax jurisdictions, HPE is no longer subject to tax authority examinations for years prior to 2005.

Hewlett Packard Enterprise is joint and severally liable for certain pre-Separation state tax liabilities of HP Inc. HP Inc. is subject to numerous ongoing audits by state tax authorities.

Hewlett Packard Enterprise engages in continuous discussion and negotiation with taxing authorities regarding tax matters in various jurisdictions. Hewlett Packard Enterprise does not expect complete resolution of any IRS 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 resolution of certain intercompany transactions, joint and several tax liabilities and other matters. Accordingly, Hewlett Packard Enterprise believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $69 million within the next 12 months.

Hewlett Packard Enterprise 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. The Company regularly assesses the likely outcomes of these audits in order to determine the appropriateness of the Company's tax provision. The Company 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 the Company 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) benefit for taxes and therefore the resolution of one or more of these uncertainties in any particular period could have a material impact on net earnings or cash flows.

Hewlett Packard Enterprise has not provided for U.S. federal and state income and foreign withholding taxes on $8.9 billion of undistributed earnings and basis differences from non-U.S. operations as of October 31, 2021 because the Company intends to reinvest such earnings indefinitely outside of the U.S. Determination of the amount of unrecognized deferred tax liability related to these earnings and basis differences is not practicable. The Company will remit non-indefinitely

reinvested earnings of its non-U.S. subsidiaries for which deferred U.S. state income and foreign withholding taxes have been provided where excess cash has accumulated and the Company determines that it is advantageous for business operations, tax or cash management reasons.

Deferred Income Taxes

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.

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

	As of October 31,
	2021		2020
	In millions
Deferred tax assets:
Loss and credit carryforwards	$	7,526	$	7,596
Inventory valuation	79		75
Intercompany prepayments	308		295
Other intercompany transactions	13		31
Warranty	50		69
Employee and retiree benefits	287		571
Restructuring	93		118
Deferred revenue	517		565
Intangible assets	91		94
Lease liabilities	184		166
Other	246		206
Total deferred tax assets	9,394		9,786
Valuation allowance	(7,368)		(7,724)
Total deferred tax assets net of valuation allowance	2,026		2,062
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries	(168)		(172)
ROU assets	(159)		(165)
Fixed assets	(170)		(237)
Total deferred tax liabilities	(497)		(574)
Net deferred tax assets and liabilities	$	1,529	$	1,488

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

	As of October 31,
	2021		2020
	In millions
Deferred tax assets	$	2,023	$	1,778
Deferred tax liabilities	(494)		(290)
Deferred tax assets net of deferred tax liabilities	$	1,529	$	1,488

As of October 31, 2021, the Company had $555 million, $3.2 billion and $19.8 billion of federal, state and foreign net operating loss carryforwards, respectively. Amounts included in federal, state and foreign net operating loss carryforwards will begin to expire in years 2030, 2022, and 2022, respectively. Hewlett Packard Enterprise has provided a valuation allowance of $171 million and $4.4 billion for deferred tax assets related to state and foreign net operating losses carryforwards, respectively. As of October 31, 2021, the Company also had $6.0 billion, $6.0 billion, and $112 million of federal, state, and foreign capital loss carryforwards, respectively. Amounts included in federal and state capital loss carryforwards will begin to expire in 2023;

foreign capital losses can carry forward indefinitely. Hewlett Packard Enterprise has provided a valuation allowance of $1.3 billion, $181 million, and $33 million for deferred tax assets related to federal, state, and foreign capital loss carryforwards, respectively.

As of October 31, 2021, Hewlett Packard Enterprise had recorded deferred tax assets for various tax credit carryforwards as follows:

	Carryforward		Valuation Allowance		Initial Year of Expiration
	In millions
U.S. foreign tax credits	$	922	$	(912)	2026
U.S. research and development and other credits	151		(1)		2022
Tax credits in state and foreign jurisdictions	153		(87)		2022
Balance at end of year	$	1,226	$	(1,000)

Total valuation allowances decreased by $356 million in fiscal 2021, primarily as a result of the release of foreign valuation allowances due to sufficient history of income and release of U.S. valuation allowances as a result of foreign tax credit utilization resulting from the Itanium litigation judgment.

Tax Matters Agreement and Other Income Tax Matters

In connection with the Separation, the Company entered into a Tax Matters Agreement with HP Inc., which was terminated with the Termination and Mutual Release Agreement in fiscal 2019. Pursuant to that termination, HP Inc. paid the Company $200 million in fiscal 2019 and $50 million in both fiscal 2020 and fiscal 2021. In connection with the Everett and Seattle Transactions, the Company entered into a DXC Tax Matters Agreement with DXC and a Micro Focus Tax Matters Agreement with Micro Focus, respectively. See Note 18, "Guarantees, Indemnifications and Warranties", for a description of the DXC Tax Matters Agreement and Micro Focus Tax Matters Agreement.