TAXES

9 Months Ended

Dec. 31, 2022

TAXES

TAXES

NOTE 5. TAXES

For the three months ended December 31, 2022, the Company’s effective tax rate was 23.2%, compared to (1.5%) for the three months ended December 31, 2021. For the nine months ended December 31, 2022, the Company’s effective tax rate was (13.1%), compared to (20.7%) for the nine months ended December 31, 2021. The Company’s positive effective tax rate for the three months ended December 31, 2022 reflects a tax benefit on a pretax loss resulting from return-to-provision adjustments recorded in that period. The Company’s negative effective tax rates for the nine months ended December 31, 2022 and in 2021 reflect a tax expense on a pretax book loss in those periods. For the three and nine months ended December 31, 2022, income taxes are computed using the estimated annual effective tax rate applicable to the fiscal year ending March 31, 2023.

The Company’s effective tax rate for the three months ended December 31, 2022 was higher than the Company’s statutory tax rate primarily due to a benefit recorded during the period resulting from return-to-provision adjustments related to the filing of certain 2021 income tax returns. The Company’s effective tax rate for the nine months ended December 31, 2022 was lower than the Company’s statutory tax rate primarily due to taxes on foreign operations and an increase in valuation allowances in certain jurisdictions against deferred tax assets that are not more likely than not to be realized, partially offset by the benefit resulting from return-to-provision adjustments. For the three and nine months ended December 31, 2022, the additions to valuation allowance primarily relate to a valuation allowance established against certain deferred tax assets in the United States.

The Company’s effective tax rate for the three months ended December 31, 2021 was lower than the Company’s statutory tax rate primarily due to the geographic mix of pretax income and nondeductible goodwill impairment. The Company’s effective tax rate for the nine months ended December 31, 2021 was lower than the Company’s statutory tax rate primarily due to the geographic mix of pretax income, changes in valuation allowances in certain jurisdictions against deferred tax assets that are not more likely than not to be realized, and tax charges related to the transfer of Kyndryl’s operations from IBM in contemplation of the Company’s Separation.