Income Taxes

9 Months Ended

Oct. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Effective Tax Rate

The Company computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. For the nine months ended October 31, 2021, the Company reported a tax provision of $257 million on a pretax income of $1.7 billion, which resulted in an effective tax rate of 15 percent. The Company’s effective tax rate differs from the U.S. statutory rate of 21 percent primarily due to excess tax benefits from stock-based compensation, partially offset by profitable jurisdictions outside of the United States subject to tax rates greater than 21 percent.

For the nine months ended October 31, 2020, the Company reported a tax benefit of $1.7 billion on a pretax income of $2.1 billion, which resulted in a negative effective tax rate of 78 percent. The Company's effective tax rate differs from the U.S. statutory rate of 21 percent was primarily due to a one-time discrete tax benefit of $2.0 billion recorded in the three months ended July 31, 2020. The Company changed its international corporate structure, which included the consolidation of certain intangible property in Ireland resulting in a net tax benefit related to foreign deferred tax assets. The Company believes that it is more likely than not the deferred tax assets will be realized in Ireland.

Unrecognized Tax Benefits and Other Considerations

The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. Certain prior year tax returns are currently being examined by various taxing authorities in countries including the United States, France and Germany. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the tax audits cannot be predicted with certainty, if any issues arising in the Company's tax audits progress in a manner inconsistent with management's expectations, the Company could adjust its provision for income taxes in the future. In addition, the Company anticipates it is reasonably possible that a decrease of its unrecognized tax benefits up to approximately $9 million may occur in the next 12 months, as the applicable statutes of limitations lapse, ongoing examinations are completed, or tax positions meet the conditions of being effectively settled.