This comes from Dell's quarterly filing to May 2 2008:
Income TaxesWe reported an effective income tax rate of approximately 23.5% for the first quarter of Fiscal 2009, as compared to 25.3% for the same quarter in the prior year. The decrease in our effective rate for the first quarter of Fiscal 2009 is primarily due to decreases in uncertain tax positions resulting from the effective settlement of an examination in a foreign jurisdiction, reevaluation of certain tax incentives, and a lower accrual of interest and penalties related to uncertain tax positions. The differences between our effective tax rate and the U.S. federal statutory rate of 35% principally result from our geographical distribution of taxable income and differences between the book and tax treatment of certain items and inclusion of interest and penalties in income tax expense. Currently, we expect interest and penalties to cause our full year Fiscal 2009 rate to be slightly higher than our rate for the first quarter of Fiscal 2009; however, the tax rate for future fiscal quarters of Fiscal 2009 will be impacted by several factors, including the mix of jurisdictions in which income is generated.Dell is currently under tax audit in various jurisdictions, including the United States. The tax periods open to examination by the major taxing jurisdictions to which Dell is subject include fiscal years 1997 through 2008. Dell does not anticipate a significant change to the total amount of unrecognized benefits within the next 12 months.
Amazing, isn't it?
Ask yourself these questions:
1) Do you think a company is seeking to be tax compliant when it publicly discusses the interest and penalties it's planing to pay?
2) Do you think a company with at least 11 years of tax return open to enquiry has done all it can to be tax compliant?
3) Could you estimate your tax liability with any accuracy if your bill for 1997 had yet to be closed? What would that say about the likely quality of the data in your accounts?
4) How would you value a company with a seriously uncertain future cash flow liability for tax? Would you downgrade it for the risk that imposes?
5) If the company you were investing in reported lower taxes because of the mix of jurisdictions in which income was generated, but you knew that its home state rate would eventually have to be paid if you as a stockholder were to catch sight of that income as a dividend what would you think of its intention to make payment to you as an investor?
6) Would you be happy if a company in which you invested reported a lower tax charge now but said it expected to accrue a higher rate for penalties with regard to past returns later in the year? Wouldn't you wonder why if the liability was anticipated it hadn't already been accrued?
7) If you had all this doubt about the tax charge and the tax compliance of the organisation what would be your impression of the overall quality of its financial reporting, compliance standards and risk management?
Thoughts to ponder upon.
It would make a good tutorial for anyone planing next year's material at just about any university I can think of.