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Income Taxes
6 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested indefinitely.
The Company recorded an income tax provision of $0.2 million and $0.2 million for the three months ended September 30, 2018 and 2017, respectively, and an income tax provision of $0.5 million and $0.4 million for the six months ended September 30, 2018 and 2017, respectively, related to foreign income taxes and state minimum taxes. Based on the available objectively verifiable evidence during the three and six months ended September 30, 2018, the Company believes it is more likely than not that the tax benefits of the U.S. losses incurred during the three and six months ended September 30, 2018 may not be realized. Accordingly, the Company did not record the tax benefits for U.S. losses incurred during the three and six months ended September 30, 2018. The primary difference between the effective tax rate and the statutory tax rate relates to the valuation allowance on the Company’s U.S. losses and foreign tax rate differences.
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “TCJA”) was enacted into law. The TCJA includes significant changes to the U.S corporate Internal Revenue Code of 1986, as amended (the “Code”). The TCJA changes include, but are not limited to, reduction in the U.S. corporate tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, limitations on the deductibility of executive compensation, interest expense and net operating loss (“NOL”) immediate expensing of capital expenditures, transition of the U.S. international taxation from a “worldwide” system to a territorial system of taxation and the introduction of a base erosion and anti-abuse tax.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. These provisional tax effects may differ during the measurement period, due to further updates to the calculations related to changes in interpretations and assumptions made, and additional guidance that may be issued by the Department of the U.S. Treasury, the Internal Revenue Service, and other regulatory and standard setting bodies. The Company will complete its analysis within the measurement period provided in SAB 118. No such adjustments were included in income tax expense for the three and six months ended September 30, 2018.
Global Intangible Low Tax Income (“GILTI”): The TJCA has a requirement that certain income earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFC’s U.S. shareholder. The GILTI Inclusion, as defined under IRC §951A, is the excess of the shareholder’s net CFC tested income over the net deemed tangible income return. The GILTI inclusion amount is expected to be fully absorbed by the current year operating loss and is not expected to cause the Company to be in a U.S. taxable income position for fiscal year 2019. The Company has not recorded deferred taxes related to these GILTI provisions and has not yet determined its policy election with respect to whether it will treat GILTI as a current-period expense when incurred (the “period cost method”) or factor such amount into the measurement of deferred taxes (the “deferred method”).
Foreign Derived Intangible Income (“FDII”): The TCJA allows a domestic corporation an immediate deduction in U.S. taxable income for a portion of its FDII. The amount of the deduction depends, in part, on U.S. taxable income. Since New Relic is forecasting a U.S. taxable loss for fiscal year 2019, this deduction is not available to the Company. There is no impact for the current quarter tax provision.
Base Erosion and Anti-Abuse Tax (“BEAT”): The BEAT minimum tax under §59A is applicable to the extent that the BEAT tax amount is greater than the regular corporate tax for a given year. This tax is applicable to companies with prior 3-year average annual gross receipts exceeding $500 million and who make deductible payments to foreign affiliates. New Relic does not meet this threshold since its average annual gross receipts are less than $500 million.