Income Taxes

12 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

(11) INCOME TAXES

The components of our income before provision for (benefit from) income taxes for the fiscal years ended March 31, 2021, 2020 and 2019 are as follows (in millions):

	Year Ended March 31,
	2021		2020		2019
Domestic	$	299	$	380	$	170
Foreign	718		1,128		909
Income before provision for (benefit from) income taxes	$	1,017	$	1,508	$	1,079

Provision for (benefit from) income taxes for the fiscal years ended March 31, 2021, 2020 and 2019 consisted of (in millions):

	Current		Deferred		Total
Year Ended March 31, 2021
Federal	$	251	$	(26)	$	225
State	24		(2)		22
Foreign	47		(114)		(67)
	$	322	$	(142)	$	180
Year Ended March 31, 2020
Federal	$	258	$	(14)	$	244
State	39		(2)		37
Foreign	48		(1,860)		(1,812)
	$	345	$	(1,876)	$	(1,531)
Year Ended March 31, 2019
Federal	$	29	$	(18)	$	11
State	5		—		5
Foreign	42		2		44
	$	76	$	(16)	$	60

The differences between the statutory tax rate and our effective tax rate, expressed as a percentage of income before provision for (benefit from) income taxes, for the fiscal years ended March 31, 2021, 2020 and 2019 were as follows:

	Year Ended March 31,
	2021		2020		2019
Statutory federal tax expense rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.7	%	1.0	%	0.7	%
Differences between statutory rate and foreign effective tax rate	7.0	%	(8.4)	%	(14.4)	%
Tax reform	—	%	—	%	(0.4)	%
Excess tax benefit from equity compensation	(2.7)	%	(0.1)	%	(1.9)	%
Research and development credits	(2.4)	%	(1.2)	%	(2.4)	%
Swiss Deferred Tax Asset	(10.1)	%	(122.1)	%	—	%
The Altera opinion	—	%	5.4	%	—	%
Non-deductible stock-based compensation	3.3	%	2.3	%	2.3	%
Other	(0.1)	%	0.6	%	0.7	%
Effective tax rate	17.7	%	(101.5)	%	5.6	%

During the fiscal year ended March 31, 2020, we completed an intra-entity sale of some of our intellectual property rights to our Swiss subsidiary, where our international business is headquartered (the “Swiss intra-entity sale”). The transaction did not result in a taxable gain. Under U.S. GAAP, any profit resulting from this intercompany transaction was eliminated upon consolidation. However, the transaction resulted in a step-up of the Swiss tax-deductible basis in the transferred intellectual property rights and, accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights (“Swiss Deferred Tax Asset”). The Swiss Deferred Tax Asset and the one-time tax benefit was measured and will be periodically remeasured based on the Swiss tax rate in effect for the years the asset will be recovered.

Our effective tax rate and resulting provision for income taxes for the fiscal year ended March 31, 2021 includes a $103 million tax benefit related to changes in our Swiss Deferred Tax Asset. This benefit was more than offset by a $180 million charge related to our decision to capitalize for income tax purposes certain foreign expenses which increased the taxable income in our foreign entities that is subject to U.S. tax. In accordance with our existing accounting policy, we do not establish deferred tax assets to offset this charge, but we expect future deductions of the capitalized amounts.

During the fiscal year ended March 31, 2020, we recognized $1.840 billion of tax benefits related to the Swiss Deferred Tax Asset, which is net of the impact of a $131 million valuation allowance and a $393 million reduction due to the impact of the decision of the Ninth Circuit Court of Appeals in Altera Corp. v Commissioner (“the Altera opinion”). The Altera opinion also resulted in the recognition of a one-time charge of $80 million related to prior period U.S. uncertain tax positions during the fiscal year ended March 31, 2020. In total, during the fiscal year ended March 31, 2020, we recognized one-time tax benefits of $1.760 billion related to the $1.840 billion Swiss Deferred Tax Asset, partially offset by the $80 million one-time Altera opinion charge.

The components of net deferred tax assets, as of March 31, 2021 and 2020 consisted of (in millions):

	As of March 31,
	2021		2020
Deferred tax assets:
Accruals, reserves and other expenses	$	158	$	141
Tax credit carryforwards	161		137
Stock-based compensation	43		37
Net operating loss and capital loss carryforwards	258		195
Swiss intra-entity tax asset	1,781		1,818
Total	2,401		2,328
Valuation allowance	(230)		(288)
Deferred tax assets, net of valuation allowance	2,171		2,040
Deferred tax liabilities:
Amortization and depreciation	(140)		(85)
ASC 606 Revenue Recognition	(21)		(43)
Other	(8)		(10)
Total	(169)		(138)
Deferred tax assets, net of valuation allowance and deferred tax liabilities	$	2,002	$	1,902

As of March 31, 2021, we have net operating loss carry forwards of approximately $2.1 billion of which approximately $1.8 billion is attributable to Switzerland and $146 million to California. Substantially all of these carryforwards, if not fully realized, will begin to expire in 2027. Switzerland has a seven-year carryforward period and does not permit the carry back of losses. We also have California credit carryforwards of $156 million. The California tax credit carryforwards can be carried forward indefinitely.

As of March 31, 2021, we maintained a total valuation allowance of $230 million related to certain U.S. state deferred tax assets, Swiss deferred tax asset, and foreign capital loss carryovers, due to uncertainty about the future realization of these assets.

The total unrecognized tax benefits as of March 31, 2021, 2020 and 2019 were $584 million, $983 million and $417 million, respectively. A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows (in millions):

Balance as of March 31, 2018	$	457
Increases in unrecognized tax benefits related to prior year tax positions	—
Decreases in unrecognized tax benefits related to prior year tax positions	(41)
Increases in unrecognized tax benefits related to current year tax positions	43
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(16)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(21)
Changes in unrecognized tax benefits due to foreign currency translation	(5)
Balance as of March 31, 2019	417
Increases in unrecognized tax benefits related to prior year tax positions	111
Decreases in unrecognized tax benefits related to prior year tax positions	(4)
Increases in unrecognized tax benefits related to current year tax positions	468
Decreases in unrecognized tax benefits related to settlements with taxing authorities	—
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(5)
Changes in unrecognized tax benefits due to foreign currency translation	(4)
Balance as of March 31, 2020	983
Increases in unrecognized tax benefits related to prior year tax positions	12
Decreases in unrecognized tax benefits related to prior year tax positions	(444)
Increases in unrecognized tax benefits related to current year tax positions	55
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(2)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(27)
Changes in unrecognized tax benefits due to foreign currency translation	7
Balance as of March 31, 2021	$	584

As of March 31, 2021, approximately $319 million of the unrecognized tax benefits would affect our effective tax rate, a portion of which would be impacted by a valuation allowance.

Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized in income tax expense in our Consolidated Statements of Operations. The combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current other liabilities was approximately $34 million as of March 31, 2021 and $34 million as of March 31, 2020.

We file income tax returns in the United States, including various state and local jurisdictions. As of March 31, 2021, our subsidiaries file tax returns in various foreign jurisdictions, including Switzerland, Canada, Sweden, Italy, France, Germany, and the United Kingdom. We remain subject to income tax examination by the IRS for fiscal years after 2016. In addition, as of the period ended March 31, 2021, we remain subject to income tax examination for several other jurisdictions including in Switzerland for fiscal years after 2011, Canada for fiscal years after 2013, Sweden for fiscal years after 2015, Italy for fiscal years after 2017, France for fiscal years after 2017, Germany for fiscal years after 2016, and the United Kingdom for fiscal years after 2019.

We are also currently under income tax examination in the United States for fiscal year 2017, Italy for fiscal year 2016, and Spain for fiscal years 2017 and 2018.

The timing and potential resolution of income tax examinations is highly uncertain. While we continue to measure our uncertain tax positions, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued.

In fiscal year 2021, the Supreme Court of the United States denied Altera’s appeal of the Altera opinion, resulting in a partial decrease of our unrecognized tax benefits. A complete resolution and settlement of the matters underlying the Altera opinion is reasonably possible within the next 12 months, which would result in an additional reduction of our gross unrecognized tax benefits. However, it is uncertain whether a complete resolution and settlement of such matters would also result in resolution of all related and unrelated U.S. positions for all applicable years. Therefore, it is not possible to provide a range of potential outcomes associated with a reversal of our gross unrecognized tax benefits for Altera uncertain tax positions.

It is also reasonably possible that an additional reduction of up to $5 million of unrecognized tax benefits may occur within the next 12 months, unrelated to the Altera opinion, a portion of which would impact our effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements and tax interpretations.