Cisco Adjusts Tax Position Following Xilinx Ruling

by Glen Shapiro, LawAndTax-News.com, New York

02 June 2009

Cisco Systems has announced that it will record a one-time tax charge of between USD130m and USD150m during its current fourth quarter as a result of the recent Xilinx cost sharing appeal court decision.

Cisco said in a securities filing shortly after the ruling by the US Court of Appeals for the Ninth Circuit on May 27 that the court’s decision "changes the tax treatment of share-based compensation expenses for the purpose of determining intangible development costs under a company’s research and development cost sharing arrangement."

The Ninth Circuit held that related parties to such an arrangement must share stock option costs, overturning an earlier opinion by the US Tax Court which found that unrelated parties in such an arrangement would not share such costs.

While Cisco Systems, Inc. was not a named party to the case, the company said that the court’s decision “impacts a tax position of Cisco for certain years prior to fiscal 2005.”

“The court’s reversal of the US Tax Court’s decision changes Cisco’s estimate of tax benefits that were required to be recognized in connection with Cisco’s adoption of Financial Interpretation No. 48, ‘Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109’ (FIN 48) at the beginning of fiscal year 2008,” the company announced.

“As a result of the Court’s ruling, Cisco will record a one-time tax charge of approximately USD130m – USD150m,” the company added.

The Xilinx case is subject to further appeal.

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