TAXES

3 Months Ended

Mar. 31, 2022

TAXES

TAXES

NOTE 5. TAXES

Due to the change in fiscal year-end discussed in Note 1 – Significant Accounting Policies, income taxes for the three months ended March 31, 2022, are computed using the actual tax rate for the period. For the period prior to the Separation, income taxes have been calculated as if Kyndryl had filed income tax returns on a standalone basis, as our operations were historically included in certain tax returns filed by IBM.

For the three months ended March 31, 2022, the Company’s effective tax rate was (21.0%), compared to (22.6%) for the three months ended March 31, 2021. The Company’s negative effective tax rates in 2022 and 2021 reflect a tax expense on a pretax book loss in both periods. The Company’s effective tax rate for the three months ended March 31, 2022, was lower than the Company’s statutory tax rate primarily due to undistributed foreign earnings, taxes on foreign operations and the establishment of valuation allowances in certain jurisdictions against deferred tax assets that are not more likely than not to be realized. For the period ended March 31, 2022, the additions to valuation allowance of $60 million relate to a full valuation allowance established against the net deferred tax assets in certain jurisdictions and a partial valuation allowance established against certain deferred tax assets in the United States.

The Company’s effective tax rate for the three months ended March 31, 2021, was lower than the Company’s statutory tax rate primarily due to the geographic mix of pretax income and changes in valuation allowances.