INCOME AND OTHER TAXES

6 Months Ended

Jul. 30, 2021

Income Tax Disclosure [Abstract]

INCOME AND OTHER TAXES

NOTE 10 — INCOME AND OTHER TAXES

For the three months ended July 30, 2021 and July 31, 2020, the Company’s effective income tax rate was 13.1% and -119.8%, respectively, on pre-tax income of $1.0 billion and $0.5 billion, respectively. For the six months ended July 30, 2021 and July 31, 2020, the Company’s effective income tax rate was 9.1% and -101.4%, respectively, on pre-tax income of $2.0 billion and $0.6 billion, respectively. The changes in the Company’s effective income tax rate are primarily driven by lower discrete tax benefits on higher pre-tax income and a change in the Company’s jurisdictional mix of income. For the six months ended July 30, 2021, the Company’s effective income tax rate includes discrete tax benefits of $131 million related to stock-based compensation. In comparison, for the six months ended July 31, 2020, the Company’s effective income tax rate includes discrete tax benefits of $746 million related to an audit settlement that was recorded in the second quarter within that period. The effective income tax rate for future quarters of Fiscal 2022 may be impacted by the actual mix of jurisdictions in which income is generated, as well as the impact of any discrete tax items.

The differences between the estimated effective income tax rates and the U.S. federal statutory rate of 21% principally result from the Company’s geographical distribution of income, differences between the book and tax treatment of certain items, and the discrete tax items discussed above. In certain jurisdictions, the Company’s tax rate is significantly less than the applicable statutory rate as a result of tax holidays. The majority of the Company’s foreign income that is subject to these tax holidays and lower tax rates is attributable to Singapore and China. A significant portion of these income tax benefits relate to a tax holiday that will be effective until January 31, 2029. The Company’s other tax holidays will expire in whole or in part during fiscal years 2022 through 2030. Many of these tax holidays and reduced tax rates may be extended when certain conditions are met or may be terminated early if certain conditions are not met. As of July 30, 2021, the Company was not aware of any matters of non-compliance related to these tax holidays.

The Internal Revenue Service is currently examining fiscal years 2015 through 2019. The Company is also currently under income tax audits in various state and foreign jurisdictions. The Company is undergoing negotiations, and in some cases contested proceedings, relating to tax matters with the taxing authorities in these jurisdictions. The Company believes that it has valid positions supporting its tax returns and that it has provided adequate reserves related to all matters contained in tax periods open to examination. Although the Company believes it has made adequate provisions for the uncertainties surrounding these audits, should the Company experience unfavorable outcomes, such outcomes could have a material impact on its results of operations, financial position, and cash flows. With respect to major U.S., state and foreign taxing jurisdictions, the Company is generally not subject to tax examinations for years prior to the fiscal year ended January 29, 2010.

Judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s provision for income taxes. The unrecognized tax benefits were $1.4 billion as of both July 30, 2021 and January 29, 2021, and are included in Other non-current liabilities in the Condensed Consolidated Statements of Financial Position. The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

The Company takes certain non-income tax positions in the jurisdictions in which it operates and has received certain non-income tax assessments from various jurisdictions. The Company believes that a material loss in these matters is not probable and that it is not reasonably possible that a material loss exceeding amounts already accrued has been incurred.  The Company believes its positions in these non-income tax litigation matters are supportable and that it ultimately will prevail in the matters. In the normal course of business, the Company’s positions and conclusions related to its non-income taxes could be challenged and assessments may be made. To the extent new information is obtained and the Company’s views on its positions, probable outcomes of assessments, or litigation change, changes in estimates to the Company’s accrued liabilities would be recorded in the period in which such a determination is made. In the resolution process for income tax and non-income tax audits, the Company is required in certain situations to provide collateral guarantees or indemnification to regulators and tax authorities until the matter is resolved.