XML 59 R16.htm IDEA: XBRL DOCUMENT v2.4.0.8
Income Taxes (Notes)
9 Months Ended
Mar. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Income tax expense was $999 and $7,819 for the three and nine months ended March 31, 2014, as compared to $2,264 and $10,587 for the same prior year periods. The decrease is primarily attributable to tax benefits resulting from changes to our corporate entity operating structure that became effective on October 1, 2013 and a lower annual effective tax rate relative to fiscal 2013. We made the changes to our corporate entity operating structure, which included transferring our intellectual property among certain of our subsidiaries, primarily to align our corporate entities with our evolving operations and business model. Additionally, income tax expense for the nine months ended March, 31 2013 was reduced by a one-time currency exchange related tax benefit of $1,918 recognized by one of our Canadian subsidiaries.
On an annual basis, our income tax expense for the majority of our subsidiaries is a function of our operating expenses and cost-based transfer pricing methodologies and not a function of consolidated pre-tax income. As a result, our consolidated annual effective tax rate will typically vary inversely to changes in our consolidated pre-tax income. For fiscal 2014, we are forecasting a lower consolidated annual effective tax rate as compared to 2013, primarily as a result of higher consolidated pre-tax earnings as compared to 2013 and changes to our geographic mix of earnings. Additionally, our fiscal 2014 consolidated annual effective tax rate will be further reduced by tax benefits recognized as a result of the changes to our corporate entity operating structure.    
     As of March 31, 2014, we had a net liability for unrecognized tax benefits included in the balance sheet of approximately $6,099, including accrued interest of $250. There have been no significant changes to the net liability during the three months ended March 31, 2014. Of the total amount of unrecognized tax benefits, approximately, $2,955 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.
It is reasonably possible that a further change in unrecognized tax benefits may occur within the next twelve months related to the settlement of one or more audits or the lapse of applicable statutes of limitations. However, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time. We believe we have appropriately provided for all tax uncertainties.
We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2007 through 2013 remain open for examination by the United States Internal Revenue Service (“IRS”) and the years 2006 through 2013 remain open for examination in the various states and non-US tax jurisdictions in which we file tax returns.
One of our subsidiaries, Vistaprint Limited (domiciled in Bermuda), is currently under income tax audit by the IRS. In August 2012, we received a Revenue Agent's Report (“RAR”) from the IRS proposing 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. In September 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 be heard by the IRS Office of Appeals. Our hearing in IRS Office of Appeals is scheduled to commence in May 2014.
Vistaprint USA, Incorporated has received Notices of Assessment from the Massachusetts Department of Revenue ("DOR") related to the tax years 2006-2008. Additionally, we have received Notices of Intent to Assess for tax years 2010 and 2011. The Notices contain proposed adjustments to taxable income for these years. The issue in dispute is whether there was appropriate value received with respect to intangible property rights owned by Vistaprint USA, Incorporated and licensed to Vistaprint Limited. The case is currently under review by the DOR Office of Appeals. However, at this stage, we believe it is unlikely that a mutually agreeable resolution will be reached in the DOR Office of Appeals. As a result, we anticipate the DOR Office of Appeals will issue a Letter of Determination within the next few months upholding the DOR’s assessments. Upon receipt of the Letter of Determination, it is our intention to file a petition to have our case heard by the Massachusetts Appellate Tax Board.
    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 the final resolution could have a material impact on our financial condition, results of operations or cash flows.