(11) INCOME TAXES

The components of our income before provision for (benefit from) income taxes for the fiscal years ended March 31, 2014, 2013 and 2012 are as follows (in millions):



	Year Ended March 31,
	2014			2013			2012
Domestic	$	(146	)	$	(15	)	$	(51	)
Foreign	153			154			69
Income before provision for (benefit from) income taxes	$	7		$	139		$	18

Provision for (benefit from) income taxes for the fiscal years ended March 31, 2014, 2013 and 2012 consisted of (in millions):



	Current			Deferred			Total
Year Ended March 31, 2014
Federal	$	(2	)	$	(9	)	$	(11	)
State	1			(2		)	(1		)
Foreign	8			3			11
	$	7		$	(8	)	$	(1	)
Year Ended March 31, 2013
Federal	$	—		$	5		$	5
State	—			1			1
Foreign	39			(4		)	35
	$	39		$	2		$	41
Year Ended March 31, 2012
Federal	$	36		$	(89	)	$	(53	)
State	3			(2		)	1
Foreign	(11		)	5			(6		)
	$	28		$	(86	)	$	(58	)

Current income tax provision includes tax benefits allocated directly to contributed capital of $12 million and $4 million for fiscal years 2014 and 2012, respectively, and none for fiscal year 2013.

The differences between the statutory tax expense rate and our effective tax expense (benefit) rate, expressed as a percentage of income before provision for (benefit from) income taxes, for the fiscal years ended March 31, 2014, 2013 and 2012 were as follows:



	Year Ended March 31,
	2014		2013		2012
Statutory federal tax expense rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	(242.9	)%	(5.0	)%	(33.5	)%
Differences between statutory rate and foreign effective tax rate	(142.9	)%	(15.2	)%	(33.5	)%
Valuation allowance	936.5	%	35.0	%	(195.1	)%
Research and development credits	(128.6	)%	(8.6	)%	(39.2	)%
Non-deductible acquisition-related costs and tax expense from integration restructurings	—		—		16.7	%
Differences between book and tax on sale of strategic investments	—		(15.2	)%	—
Resolution of tax matters with authorities	(657.1	)%	—		—
Expiration of statutes of limitations	—		—		(266.8	)%
Non-deductible stock-based compensation	385.7	%	21.5	%	205.6	%
Acquisition-related contingent consideration	(185.7	)%	(16.5	)%	—
Other	(14.3	)%	(1.5	)%	(11.4	)%
Effective tax expense (benefit) rate	(14.3	)%	29.5	%	(322.2	)%

In connection with a review of our cash position including potential future cash needs for stock repurchases and debt retirement, we made a one-time repatriation of $700 million from certain of our wholly-owned subsidiaries during the three months ended March 31, 2014. This repatriation did not have a material impact on our effective tax rate for fiscal 2014 due to the deferred tax valuation allowance.

Undistributed earnings of our foreign subsidiaries amounted to approximately $150 million as of March 31, 2014, principally related to Electronic Arts (Canada). Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.

The components of net deferred tax assets, as of March 31, 2014 and 2013 consisted of (in millions):



	As of March 31,
	2014			2013
Deferred tax assets:
Accruals, reserves and other expenses	$	163		$	179
Tax credit carryforwards	462			214
Stock-based compensation	43			46
Net operating loss & capital loss carryforwards	199			286
Total	867			725
Valuation allowance	(675		)	(510		)
Deferred tax assets, net of valuation allowance	192			215
Deferred tax liabilities:
Depreciation	(12		)	(16		)
State effect on federal taxes	(63		)	(56		)
Amortization	(28		)	(34		)
Prepaids and other liabilities	(9		)	(11		)
Total	(112		)	(117		)
Deferred tax assets, net of valuation allowance and deferred tax liabilities	$	80		$	98

The valuation allowance increased by $165 million in fiscal year 2014, primarily due to the increase in deferred tax assets for U.S. tax credits that are not currently considered to be more likely than not to be realized.

As of March 31, 2014, we have federal net operating loss (“NOL”) carry forwards of approximately $402 million of which approximately $48 million is attributable to various acquired companies. These acquired net operating loss carry forwards are subject to an annual limitation under Internal Revenue Code Section 382. The federal NOL, if not fully realized, will begin to expire in 2032. Furthermore, we have state net loss carry forwards of approximately $932 million of which approximately $137 million is attributable to various acquired companies. The state NOL, if not fully realized, will begin to expire in 2016. We also have U.S. federal, California and Canada tax credit carry forwards of $365 million, $121 million and $14 million, respectively. The U.S. federal tax credit carry forwards will begin to expire in 2019. The California and Canada tax credit carry forwards can be carried forward indefinitely.

The total unrecognized tax benefits as of March 31, 2014 and 2013 were $232 million and $297 million, respectively. As of March 31, 2014, no prior cash deposits to tax authorities for issues pending resolution as of March 31, 2014 were available to offset tax liabilities. As of March 31, 2013, prior cash deposits to tax authorities for issues pending resolution as of March 31, 2013 were available to offset $46 million of liabilities. A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows (in millions):



Balance as of March 31, 2012	$	274
Increases in unrecognized tax benefits related to prior year tax positions	2
Decreases in unrecognized tax benefits related to prior year tax positions	(2		)
Increases in unrecognized tax benefits related to current year tax positions	30
Decreases in unrecognized tax benefits related to settlements with taxing authorities	—
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(5		)
Changes in unrecognized tax benefits due to foreign currency translation	(2		)
Balance as of March 31, 2013	297
Increases in unrecognized tax benefits related to prior year tax positions	10
Decreases in unrecognized tax benefits related to prior year tax positions	(79		)
Increases in unrecognized tax benefits related to current year tax positions	44
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(29		)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(9		)
Changes in unrecognized tax benefits due to foreign currency translation	(2		)
Balance as of March 31, 2014	$	232

A portion of our unrecognized tax benefits will affect our effective tax rate if they are recognized upon favorable resolution of the uncertain tax positions. As of March 31, 2014, approximately $84 million of the unrecognized tax benefits would affect our effective tax rate and approximately $148 million would result in adjustments to deferred tax valuation allowance. As of March 31, 2013, approximately $106 million of the unrecognized tax benefits would affect our effective tax rate and approximately $177 million would result in corresponding adjustments to the deferred tax valuation allowance.

Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized in income tax expense in our Consolidated Statements of Operations. The combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current other liabilities was approximately $16 million as of March 31, 2014, as compared to $23 million as of March 31, 2013. Accrued interest expense related to estimated obligations for unrecognized tax benefits decreased by approximately $7 million during fiscal year 2014. There is no material change in accrued penalties during fiscal year 2014.

We file income tax returns in the United States, including various state and local jurisdictions. Our subsidiaries file tax returns in various foreign jurisdictions, including Canada, France, Germany, Switzerland and the United Kingdom. During the fourth quarter of the fiscal year ended March 31, 2014 we reached a final settlement with the Internal Revenue Service (“IRS”) for the fiscal years 2006 through 2008. As a result, we recorded approximately $73 million of previously unrecognized tax benefits and reduced our accrual for interest by approximately $6 million. The recognition of approximately $19 million of these previously unrecognized tax benefits resulted in a reduction to our effective tax rate. The remainder, approximately $54 million, resulted in a corresponding adjustment to the deferred tax valuation allowance. The IRS is currently examining our returns for fiscal years 2009 through 2011, and we remain subject to income tax examination by the IRS for fiscal years after 2011.

On January 18, 2011, we received a Corporation Notice of Reassessment (the “Notice”) from the Canada Revenue Agency (“CRA”) claiming that we owe additional taxes, plus interest and penalties, for the 2004 and 2005 tax years. During the fourth quarter of the fiscal year ended March 31, 2014, we reached a final settlement with the CRA for the 2004 and 2005 tax years. In addition, we reached agreement on the major terms of a bilateral Advance Pricing Agreement (“APA”) with the IRS and the CRA for fiscal years 2006 through 2016. As a result, we recorded approximately $17 million of previously unrecognized tax benefits and reduced our accrual for interest by approximately $3 million. The recognition of these previously unrecognized tax benefits resulted in a reduction to our effective rate.

We are also currently under income tax examination in the United Kingdom for fiscal years 2010 through 2012, in Germany for fiscal years 2008 through 2012, in Spain for fiscal years 2010 through 2013, and in Italy for fiscal years 2009 through 2011. We remain subject to income tax examination for several other jurisdictions including in France for fiscal years after 2011, in Germany for fiscal years after 2012, in the United Kingdom for fiscal years after 2012, and in Switzerland for fiscal years after 2007.

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 a reduction of up to $11 million of unrecognized tax benefits may occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.