Income Taxes

9 Months Ended

Oct. 31, 2024

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, 2024, the Company reported a tax provision of $961 million on pretax income of $5.5 billion, which resulted in an effective tax rate of 18 percent. The Company’s effective tax rate differed from the U.S. statutory rate of 21 percent primarily due to research and development credits, the foreign-derived intangible income deduction, and excess tax benefits from stock-based compensation.

For the nine months ended October 31, 2023, the Company reported a tax provision of $615 million on pretax income of $3.3 billion, which resulted in an effective tax rate of 19 percent. The Company’s effective tax rate differed from the U.S. statutory rate of 21 percent primarily due to discrete benefits from research and development credits, foreign tax credits attributable to the IRS Notice 2023-55, and certain adjustments resulted from a transfer pricing agreement in a foreign tax jurisdiction, partially offset by profitable jurisdictions outside of the United States subject to tax rates greater than 21 percent and withholding taxes.

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, Germany, France, Israel, and India. 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 an insignificant decrease of its unrecognized tax benefits 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.