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NOTE 10 INCOME TAXES
The components of the provision for income taxes are as follows:
| (In millions) |
| Year Ended June 30 |
2002 |
|
2003 |
|
2004 |
| |
| Current taxes: |
| U.S. and state |
$3,644 |
|
$3,861 |
|
$3,940 |
| International |
575 |
|
808 |
|
1,056 |
| Current taxes |
4,219 |
|
4,669 |
|
4,996 |
| Deferred taxes |
(1,699) |
|
(1,146) |
|
(968) |
| Provision for income taxes |
$2,520 |
|
$3,523 |
|
$4,028 |
| |
| U.S. and international components of income before income taxes are as follows: |
| |
| (In millions) |
| Year Ended June 30 |
2002 |
|
2003 |
|
2004 |
| |
| U.S. |
$5,282 |
|
$17,674 |
|
$18,088 |
| International |
2,593 |
|
3,380 |
|
4,108 |
| Income before income taxes |
$7,875 |
|
$11,054 |
|
$12,196 |
| |
| The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes are as follows: |
| |
| (In millions) |
| Year Ended June 30 |
2002 |
|
2003 |
|
2004 |
| |
| Federal statutory rate |
35.0% |
|
35.0% |
|
35.0% |
| Effect of: |
| Extraterritorial income exclusion tax benefit |
(3.1) |
|
(1.6) |
|
(0.9) |
| Permanent reinvestment of foreign earnings |
(1.8) |
|
(1.3) |
|
(1.7) |
| Other reconciling items |
1.9 |
|
- |
|
0.6 |
| Total |
32.0% |
|
32.1% |
|
33.0% |
The 2004 other reconciling items include the $208 million benefit from the resolution of the issue remanded by the 9th Circuit Court of Appeals and the impact of the non-deductible European Commission fine.
Deferred income taxes were:
| (In millions) |
| June 30 |
2003 |
|
2004 |
| |
| Deferred income tax assets: |
| Revenue items |
$(2,556 |
|
$(2,032 |
| Expense items |
1,048 |
|
1,308 |
| Impaired investments |
1,525 |
|
1,246 |
| Stock-based compensation expense |
3,892 |
|
3,749 |
| Deferred income tax assets |
9,021 |
|
8,335 |
| Deferred income tax liabilities: |
| Unrealized gain on investments |
(1,584) |
|
(1,087) |
| International earnings |
(1,809) |
|
(2,227) |
| Other |
(961) |
|
(1,095) |
| Deferred income tax liabilities |
(4,354) |
|
(4,409) |
| Net deferred income taxes |
$(4,667 |
|
$(3,926 |
| Reported as: |
| Current deferred tax assets |
$(2,506 |
|
$(2,097 |
| Long-term deferred tax assets |
2,161 |
|
1,829 |
| Net deferred income taxes |
$(4,667 |
|
$(3,926 |
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
We have not provided for U.S. deferred income taxes or foreign withholding taxes on $2.30 billion of our undistributed earnings for certain non-U.S. subsidiaries, all of which relate to fiscal 2002, 2003, and 2004 earnings, because these earnings are intended to be permanently reinvested in operations outside the United States.
On December 3, 2002, the Ninth Circuit Court of Appeals reversed, in part, an earlier U.S. Tax Court decision. In 2004, the remaining issue remanded by the Ninth Circuit Court of Appeals was resolved closing all tax years with the IRS through 1996. The IRS is currently auditing 1997 through 2003. Management believes any adjustments that may ultimately be required will not be material to the financial statements. Income taxes paid were $1.9 billion in fiscal 2002, $2.8 billion in fiscal 2003, and $2.5 billion in fiscal 2004.
  
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