Income Taxes

9 Months Ended

Sep. 30, 2021

Income Taxes

Income Taxes

10. Income Taxes:

For purposes of our combined financial statements, income taxes have been calculated as if we file income tax returns for the Company on a standalone basis. The Company’s operations historically have been included in the income tax returns of IBM. The Company believes the assumptions supporting its allocation and presentation of income taxes on a separate return basis are reasonable. However, the Company’s tax results, as presented in the combined financial statements, may not be reflective of the results that the Company expects to generate in the future.

For the third quarter of 2021, the Company’s effective tax rate was (47.8%) compared to (39.7%) in the third quarter of 2020. The negative effective tax rate in 2021 and 2020 reflects a tax expense on a pretax loss. The third quarter of 2021 rate was lower than the Company's statutory tax rate primarily due to changes in valuation allowance, losses in certain jurisdictions that cannot be benefited from, and tax charges related to the transfer of Kyndryl’s operations from Parent in contemplation of the Company’s Separation. The increase in deferred taxes in the third quarter primarily reflects the transfer of operations from Parent in contemplation of our Spin-off. The third quarter of 2020 rate was lower than the Company's statutory tax rate primarily due to changes in valuation allowance and losses in certain jurisdictions that cannot be benefited from.

For the first nine months of 2021, the Company's effective tax rate was (32.6%) compared to (23.2%) in the first nine months of 2020. The negative effective tax rate in 2021 and 2020 reflects a tax expense on a pretax loss. The year-to-date 2021 rate was lower than the Company's statutory tax rate primarily due to changes in valuation allowance, losses in certain jurisdictions that cannot be benefited from, and tax charges related to the transfer of Kyndryl’s

operations from Parent in contemplation of the Company’s Separation. The 2020 rate was lower than the Company’s combined statutory tax rate primarily due to changes in valuation allowance and losses in certain jurisdictions that cannot be benefited from.