Oracle’s IP Transfer Results in $2.3 Billion Tax Benefit
Firm slashed its tax rate and created a multi-billion dollar deferred tax asset.
April 8, 2021
Oracle (ORCL), an enterprise IT provider, reduced its tax rate 69.7% in its latest quarter to (53.3%) by shifting some of its intellectual property (IP) rights. In FY21 3Q 10-Q, Oracle warns its current quarter results aren’t comparable to the prior quarter due to the income tax related effects of:
“...a partial realignment of our legal entity structure that resulted in the intra-group transfer of certain intellectual property rights.”
In addition to the IP rights transfer, the realignment also shifted earnings in foreign operations, state taxes, tax credits, settlements with tax authorities, the tax effects of stock-based compensation, and other items. In all, Oracle says the realignment resulted in billions in tax savings:
“...we recognized a benefit from income taxes primarily due to the result of a net discrete tax benefit of $2.3 billion that was recorded as a deferred tax asset of $11.3 billion and a non-current deferred tax liability of $9.1 billion.”
The deferred tax asset was recognized as a result of the book and tax basis difference on the intra-group IP rights transfer as well as the other items mentioned in the realignment. The tax amortization related to the intellectual property deferred tax asset will be recognized in future periods and any unused amortization in a particular year will carry forward indefinitely.
The realignment created a deferred tax asset of $11.3 billion and a non-current deferred tax liability of $9.1 billion, resulting in the $2.3 billion tax benefit. Oracle expects to realize the net deferred tax asset recorded as a result of the intangible property transfer and will periodically assess the realizability of the net deferred tax asset.
Oracle paid no tax in the quarter ending February 28, 2021. The company recorded a $1.7 billion income tax benefit, lifting net income to more than $5 billion compared to $2.5 billion in the prior year’s quarter.
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