(11) INCOME TAXES

The components of our income before provision for (benefit from) income taxes for the fiscal years ended March 31, 2016, 2015 and 2014 are as follows (in millions):



	Year Ended March 31,
	2016		2015		2014
Domestic	$	133	$	232	$	(146	)
Foreign	744		693		153
Income before provision for (benefit from) income taxes	$	877	$	925	$	7

Provision for (benefit from) income taxes for the fiscal years ended March 31, 2016, 2015 and 2014 consisted of (in millions):



	Current			Deferred			Total
Year Ended March 31, 2016
Federal	$	69		$	(376	)	$	(307	)
State	5			(14		)	(9		)
Foreign	36			1			37
	$	110		$	(389	)	$	(279	)
Year Ended March 31, 2015
Federal	$	10		$	17		$	27
State	—			—			—
Foreign	21			2			23
	$	31		$	19		$	50
Year Ended March 31, 2014
Federal	$	(2	)	$	(9	)	$	(11	)
State	1			(2		)	(1		)
Foreign	8			3			11
	$	7		$	(8	)	$	(1	)

On July 27, 2015, the United States Tax Court, in an opinion in Altera Corp v. Commissioner, invalidated the portion of the Treasury regulations issued under Internal Revenue Code Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. The U.S. Tax Court issued the final decision on December 28, 2015. On February 19, 2016, the government filed a notice of appeal of the Tax Court decision. At this time, the U.S. Treasury has not withdrawn its regulations that require including stock-based compensation in a cost sharing arrangement. We have evaluated the opinion and have recorded a $41 million tax benefit related to fiscal year 2016 stock-based compensation deductions that will not be subject to reimbursement through cost share payments if the Tax Court’s opinion is sustained. We will continue to monitor developments related to the case and the potential impact on our consolidated financial statements.

Excess tax benefits from stock-based compensation deductions are allocated to contributed capital before historical net operating losses are utilized to reduce tax expense. The income tax provision includes tax benefits allocated directly to contributed capital of $83 million, $21 million and $12 million for fiscal years 2016, 2015, and 2014, respectively.

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, 2016, 2015 and 2014 were as follows:



	Year Ended March 31,
	2016		2015		2014
Statutory federal tax expense rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	0.5	%	0.1	%	(242.9	)%
Differences between statutory rate and foreign effective tax rate	(22.1	)%	(22.3	)%	(142.9	)%
Valuation allowance	(51.7	)%	(9.2	)%	936.5	%
Research and development credits	(0.6	)%	(1.1	)%	(128.6	)%
Unremitted earnings of foreign subsidiaries	4.9	%	—		—	%
Resolution of tax matters with authorities	—	%	(0.5	)%	(657.1	)%
Non-deductible stock-based compensation	3.1	%	3.5	%	385.7	%
Acquisition-related contingent consideration	—	%	(0.2	)%	(185.7	)%
Other	(0.9	)%	0.1	%	(14.3	)%
Effective tax expense (benefit) rate	(31.8	)%	5.4	%	(14.3	)%

We generated income in lower tax jurisdictions primarily related to our European and Asia Pacific businesses that are headquartered in Switzerland.

Historically, we have considered all undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States and, accordingly, no U.S. taxes have been provided thereon. During the fourth quarter of fiscal year 2016, we issued the Senior Notes and we announced a $500 million stock repurchase program. In light of these future obligations, we reevaluated our intent to indefinitely reinvest all earnings of foreign subsidiary companies, and concluded that a portion of earnings of certain subsidiaries will no longer be considered to be indefinitely reinvested. As a result, we have recognized a deferred tax liability of $43 million for U.S. income taxes with respect to such earnings.

Undistributed earnings of our foreign subsidiaries that are considered to be indefinitely reinvested are $1,241 million as of March 31, 2016. As we currently have no plans to repatriate those earnings, 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. As we do not know the time or manner in which we would repatriate those funds, it is not practicable to determine the impact of local taxes, withholding taxes and foreign tax credits associated with the future repatriation of such earnings and therefore we cannot quantify the tax liability.

The components of net deferred tax assets, as of March 31, 2016 and 2015 consisted of (in millions):



	As of March 31,
	2016			2015
Deferred tax assets:
Accruals, reserves and other expenses	$	171		$	189
Tax credit carryforwards	334			312
Stock-based compensation	39			35
Net operating loss & capital loss carryforwards	28			41
Total	572			577
Valuation allowance	(114		)	(555		)
Deferred tax assets, net of valuation allowance	458			22
Deferred tax liabilities:
Amortization and Depreciation	(27		)	(32		)
Unremitted earnings of foreign subsidiaries	(43		)	—
Prepaids and other liabilities	(3		)	(8		)
Total	(73		)	(40		)
Deferred tax assets, net of valuation allowance and deferred tax liabilities	$	385		$	(18	)

From the third quarter of fiscal year 2009 to the third quarter of fiscal year 2016, we maintained a 100% valuation allowance against most of our U.S. deferred tax assets because there was insufficient positive evidence to overcome the existing negative evidence such that it was not more likely than not that the U.S. deferred tax assets were realizable. While we reported U.S. pre-tax income in fiscal year 2015, because we reported U.S. pre-tax losses during the previous seven fiscal years, as well as in the second and third quarters of fiscal year 2016, we continued to maintain the 100% valuation allowance through the third quarter of fiscal year 2016.

In the fourth quarter of fiscal year 2016, we realized significant U.S. pre-tax income for both the fourth quarter and the fiscal year ended March 31, 2016. As of March 31, 2016, we had reported positive operating performance in the U.S. for two consecutive fiscal years and had also reported a cumulative three-year U.S. pre-tax profit. In addition, during the fourth quarter of fiscal year 2016, we completed our financial plan for fiscal year 2017 and expect continued positive operating performance in the U.S. We also considered forecasts of future taxable income and evaluated the utilization of tax credit carryforwards prior to their expiration. After considering these factors, we determined that the positive evidence overcame any negative evidence and concluded that it was more likely than not that the U.S. deferred tax assets were realizable. As a result, we released the valuation allowance against all of the U.S. federal deferred tax assets and a portion of the U.S. state deferred tax assets during the fourth quarter of fiscal year 2016.

The valuation allowance decreased by $441 million in fiscal year 2016, primarily due to the release of the valuation allowance on U.S. deferred tax assets. As of March 31, 2016, we maintained a valuation allowance of $114 million, primarily related to certain U.S. state deferred tax assets and foreign capital loss carryovers, due to uncertainty about the future realization of these assets. In determining the amount of deferred tax assets that are more likely than not to be realized, we evaluated the potential to realize the assets through the utilization of tax loss and credit carrybacks, the reversal of existing taxable temporary differences, future taxable income exclusive of the reversal of existing taxable temporary differences, and certain tax planning strategies.

As of March 31, 2016, we have state net operating loss carry forwards of approximately $1,016 million of which approximately $130 million is attributable to various acquired companies. These carryforwards, if not fully realized, will begin to expire in 2017. We also have U.S. federal, California and Canada tax credit carryforwards of $373 million, $93 million and $8 million, respectively. The U.S. federal tax credit carryforwards will begin to expire in 2024. The California and Canada tax credit carryforwards can be carried forward indefinitely.

The total unrecognized tax benefits as of March 31, 2016, 2015 and 2014 were $331 million, $254 million and $232 million, respectively. A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows (in millions):



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
Increases in unrecognized tax benefits related to prior year tax positions	9
Decreases in unrecognized tax benefits related to prior year tax positions	(14		)
Increases in unrecognized tax benefits related to current year tax positions	50
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(6		)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(7		)
Changes in unrecognized tax benefits due to foreign currency translation	(10		)
Balance as of March 31, 2015	254
Increases in unrecognized tax benefits related to prior year tax positions	33
Decreases in unrecognized tax benefits related to prior year tax positions	(4		)
Increases in unrecognized tax benefits related to current year tax positions	63
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(10		)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(4		)
Changes in unrecognized tax benefits due to foreign currency translation	(1		)
Balance as of March 31, 2016	$	331

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, 2016, approximately $305 million of the unrecognized tax benefits would affect our effective tax rate and approximately $26 million would result in 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 $15 million as of March 31, 2016 and $16 million as of March 31, 2015. There was approximately $1 million decrease in in accrued interest and penalties during fiscal year 2016.

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. 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 2012.

We are also currently under income tax examination in the United Kingdom for fiscal years 2010 through 2014. We remain subject to income tax examination for several other jurisdictions including in France and Germany for fiscal years after 2012, in the United Kingdom for fiscal years after 2014, and in Canada and 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 $50 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.