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Income Taxes
12 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The Company operates in the United States and many foreign countries and is subject to the tax laws of many jurisdictions. Changes in tax laws or the interpretation of tax laws can affect the Company’s earnings, as can the resolution of pending and contested tax issues. The Company's consolidated effective income tax rate is affected by a number of factors, including the mix of domestic and foreign earnings and the effect of exchange rate changes on local taxable income and deferred taxes in foreign countries.
For fiscal years ended March 31, 2023, 2022, and 2021 the Company's U.S. federal statutory tax rate is 21.0%. The U.S. tax system is primarily territorial based after the enactment of the Tax Cuts and Jobs Act of 2017. The U.S. tax law imposes a tax on U.S. shareholders on certain low-taxed income earned by controlled foreign corporations, referred to as global intangible low-taxed income ("GILTI”). The Company has made an accounting policy election to account for any additional tax resulting from the GILTI provisions in the year in which it is incurred and has not recorded any deferred taxes on temporary book-tax differences related to this income.
The Company continues to assume repatriation of all undistributed earnings of its consolidated foreign subsidiaries and has therefore provided for expected foreign withholding taxes on the distribution of those earnings where applicable, net of any U.S. tax credit attributable to those withholding taxes. The Company has asserted permanent reinvestment of the book basis of certain foreign subsidiaries, and accordingly, no deferred income tax liability has been recorded for any potential taxable gain that may be realized on a future disposition or liquidation of any of those subsidiaries. It is not practicable for the Company to quantify any deferred income tax liability that would be attributable to those events.
Income Tax Expense
Income taxes for the fiscal years ended March 31, 2023, 2022, and 2021 consisted of the following: 
Fiscal Year Ended March 31,
202320222021
Current
United States$9,967 $15,042 $9,500 
State and local1,134 265 621 
Foreign8,289 25,828 21,626 
19,390 41,135 31,747 
Deferred
United States(4,727)(498)(5,938)
State and local613 1,568 (314)
Foreign(3,543)(3,542)3,917 
(7,657)(2,472)(2,335)
Total$11,733 $38,663 $29,412 
Foreign taxes include any applicable U.S. tax expense on the earnings of foreign subsidiaries.
Consolidated Effective Income Tax Rate
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
Fiscal Year Ended March 31,
202320222021
U.S. federal statutory tax rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit1.0 1.0 0.2 
Foreign earnings taxed at rates other than the U.S. federal statutory tax rate(1.5)3.7 (0.9)
Foreign dividend withholding taxes2.6 2.3 5.3 
Brazil tax ruling(17.1)— — 
Changes in uncertain tax positions(0.1)(0.3)— 
Other2.4 (0.5)(2.2)
Effective income tax rate8.3 %27.2 %23.4 %
In fiscal year 2023, one of the Company's subsidiaries in Brazil received a favorable final judgement from the Brazilian Superior Court of Justice. The lawsuit asserted certain tax credits on exported goods should be excluded from taxable income. The Brazilian revenue authority asserted certain tax credits generated on purchased goods and services that were ultimately exported from Brazil should be included in the calculation of taxable income. The Brazilian Superior Court of Justice affirmed the tax credits are non-taxable in accordance with the historical and existing tax legislation in Brazil. The ruling resulted in recognition of $26.6 million of Brazilian tax credits due to the recalculation of federal income taxes in Brazil for years 2015 through 2022. The affirmative ruling also resulted in recognition of $5.0 million of interest income for the fiscal year ended March 31, 2023. The tax credits and associated interest income credits are expected to be used to reduce federal non-income tax liabilities through the end of calendar year 2027. The tax credits were recognized as both current and noncurrent assets on the consolidated balance sheet based on when the credits are expected to be realized. Additionally, any unused tax credits will earn tax-exempt interest income through the expiration date, which can be used to reduce both non-income tax and income tax liabilities. The Brazilian federal tax authority has formally acknowledged the tax credits and related interest credits to be used by one of the Company's Brazilian subsidiaries. The ruling resulted in a net income tax benefit of $24.2 million in fiscal year 2023. The net income tax benefit included a $2.4 million income tax provision for U.S. federal income taxes related to the fiscal year 2018 consolidated federal tax return that will need to be amended. The Company sold its idled Tanzania operations and recognized $1.1 million of income taxes in the fiscal year ended March 31, 2023.
In fiscal year 2022, the Company recognized a $1.7 million benefit related to a final tax law ruling at a foreign subsidiary. In fiscal year 2021, the Company recognized a $4.4 million net tax benefit for final U.S. tax regulations issued for hybrid dividends paid by foreign subsidiaries.
Components of Income Before Income Taxes
The U.S. and foreign components of income before income taxes were as follows:
Fiscal Year Ended March 31,
202320222021
United States$27,942 $74,553 $30,060 
Foreign114,027 67,714 95,666 
Total$141,969 $142,267 $125,726 
Deferred Income Tax Liabilities and Assets
Significant components of deferred tax liabilities and assets were as follows:  
March 31,
20232022
Liabilities
Foreign withholding taxes$17,123 $19,353 
Property, plant and equipment10,617 10,567 
Undistributed earnings3,772 3,004 
Operating lease right-of-use assets5,791 6,621 
Goodwill and other intangible assets33,781 34,584 
Local currency exchange gains of foreign subsidiaries1,432 4,094 
All other3,239 3,414 
Total deferred tax liabilities$75,755 $81,637 
Assets
Employee benefit plans$15,654 $16,138 
Reserves and accruals5,692 9,844 
Deferred income5,573 4,127 
Operating lease right-of-use liabilities5,500 6,538 
Currency translation losses of foreign subsidiaries2,173 2,173 
Local currency exchange losses of foreign subsidiaries1,084 595 
Foreign tax credit carryforward5,578 2,538 
Capital loss carryforwards4,197 — 
All other11,016 7,148 
Total deferred tax assets56,467 49,101 
Valuation allowance(10,234)(3,182)
Net deferred tax assets$46,233 $45,919 
At March 31, 2023, the Company had no material net operating loss carryforwards in either its domestic or foreign operations.
Combined Income Tax Expense (Benefit)
The combined income tax expense (benefit) allocable to continuing operations and other comprehensive income was as follows:
Fiscal Year Ended March 31,
202320222021
Continuing operations$11,733 $38,663 $29,412 
Other comprehensive loss3,551 6,555 9,563 
Total
$15,284 $45,218 $38,975 
Uncertain Tax Positions
A reconciliation of the beginning and ending balance of the gross liability for uncertain tax positions is as follows:
Fiscal Year Ended March 31,
202320222021
Liability for uncertain tax positions, beginning of year$2,024 $2,437 $2,377 
Additions:
Related to tax positions for the current year1,198 48 49 
Related to tax positions for prior years— 328 — 
Reductions:
Due to lapses of statutes of limitations(75)(56)(135)
Due to tax settlements(1,661)(814)— 
Effect of currency rate changes(71)81 146 
Liability for uncertain tax positions, end of year$1,415 $2,024 $2,437 
The liability for uncertain tax positions at March 31, 2023 includes approximately $1.4 million that could have an effect on the consolidated effective tax rate if the tax benefits are recognized. The liability for uncertain tax positions includes $0.1 million related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2024. This amount reflects a possible decrease in the liability for uncertain tax positions that could result from the completion and resolution of tax audits and the expiration of open tax years in various tax jurisdictions. The $1.7 million settlement in fiscal year 2023 represents the resolution of a tax matter with a foreign tax authority.
The $0.8 million settlement in fiscal year 2022 represents the resolution of a tax matter with a local country taxing authority. The Company accrued $0.5 million of the fiscal year 2022 settlement in prior fiscal years.
For fiscal year ended March 31, 2023, the Company recognized $1.8 million as a reduction to interest expense related to an uncertain tax position on the Tanzania operations that were sold in fiscal year 2023. For the fiscal year ended March 31, 2021, the Company recognized $1.8 million as a component of interest expense related to a settlement of an uncertain tax position at a foreign subsidiary. Amounts accrued or reversed for interest were not material for fiscal year 2022. Amounts accrued or reversed for penalties were not material for fiscal years 2023 through 2021, and liabilities recorded for penalties at March 31, 2023 and 2022 also were not material.
Universal and its subsidiaries file a U.S. federal consolidated income tax return, as well as returns in several U.S. states and a number of foreign jurisdictions. As of March 31, 2023, the Company's earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2018. Open tax years in U.S. federal, state and foreign jurisdictions range from 3 to 6 years.