Income Taxes

12 Months Ended

Mar. 31, 2022

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, 2022, 2021 and 2020 are as follows (in millions):

	Year Ended March 31,
	2022		2021		2020
Domestic	$	204	$	299	$	380
Foreign	877		718		1,128
Income before provision for (benefit from) income taxes	$	1,081	$	1,017	$	1,508

Provision for (benefit from) income taxes for the fiscal years ended March 31, 2022, 2021 and 2020 consisted of (in millions):

	Current		Deferred		Total
Year Ended March 31, 2022
Federal	$	203	$	(190)	$	13
State	36		(26)		10
Foreign	381		(112)		269
	$	620	$	(328)	$	292
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)

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, 2022, 2021 and 2020 were as follows:

	Year Ended March 31,
	2022		2021		2020
Statutory federal tax expense rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.9	%	1.7	%	1.0	%
Differences between statutory rate and foreign effective tax rate	6.8	%	7.0	%	(8.4)	%
Excess tax benefit from equity compensation	(1.2)	%	(2.7)	%	(0.1)	%
Research and development credits	(2.8)	%	(2.4)	%	(1.2)	%
Swiss Deferred Tax Asset	2.7	%	(10.1)	%	(122.1)	%
Acquired IP intra-entity sales	(5.9)	%	—	%	—	%
The Altera opinion	—	%	—	%	5.4	%
Non-deductible stock-based compensation	3.8	%	3.3	%	2.3	%
Other	0.7	%	(0.1)	%	0.6	%
Effective tax rate	27.0	%	17.7	%	(101.5)	%

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 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.

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.

Our effective tax rate and resulting provision for income taxes for the fiscal year ended March 31, 2021 includes a $141 million tax benefit for changes in uncertain tax positions and the valuation allowance related to our Swiss Deferred Tax Asset. During the fiscal year ended March 31, 2022, we recognized a $29 million tax charge to increase the valuation allowance on our Swiss Deferred Tax Asset.

During the fiscal year ended March 31, 2022, we completed the Acquired IP intra-entity sales of intellectual property rights to our U.S. and Swiss intellectual property owners. The transactions resulted in overall taxable gains. Under U.S. GAAP, any profit resulting from the Acquired IP intra-entity sales was eliminated upon consolidation. However, the transactions resulted in a step-up of the U.S. and 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. As a result, we recognized a $64 million net tax benefit for the current and deferred tax impacts of the sales.

Our foreign subsidiaries are generally subject to U.S. tax, and to the extent earnings from these subsidiaries can be repatriated without a material tax cost, such earnings will not be indefinitely reinvested. As of March 31, 2022, approximately $2.0 billion of our cash and cash equivalents were domiciled in foreign tax jurisdictions. All of our foreign cash is available for repatriation without a material tax cost.

The components of net deferred tax assets, as of March 31, 2022 and 2021 consisted of (in millions):

	As of March 31,
	2022		2021
Deferred tax assets:
Accruals, reserves and other expenses	$	185	$	158
Tax credit carryforwards	198		161
Stock-based compensation	43		43
Net operating loss and capital loss carryforwards	349		258
Swiss intra-entity tax asset	1,782		1,781
Total	2,557		2,401
Valuation allowance	(296)		(230)
Deferred tax assets, net of valuation allowance	2,261		2,171
Deferred tax liabilities:
Amortization and depreciation	(13)		(140)
ASC 606 Revenue Recognition	—		(21)
Other	(7)		(8)
Total	(20)		(169)
Deferred tax assets, net of valuation allowance and deferred tax liabilities	$	2,241	$	2,002

As of March 31, 2022, we have net operating loss carry forwards of approximately $2.5 billion of which approximately $328 million is attributable to various acquired companies. The net operating loss carry forwards include $2.1 billion related to Switzerland, $239 million related to U.S. federal, and $119 million related to California. Substantially all of these carryforwards, if not fully realized, will begin to expire in fiscal year 2027. Switzerland has a seven-year carryforward period and does not permit the carry back of losses. We also have U.S. federal credit carryforwards of $13 million and California credit carryforwards of $174 million. The California tax credit carryforwards can be carried forward indefinitely.

As of March 31, 2022, we maintained a total valuation allowance of $296 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, 2022, 2021 and 2020 were $636 million, $584 million and $983 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, 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
Increases in unrecognized tax benefits related to prior year tax positions	5
Decreases in unrecognized tax benefits related to prior year tax positions	(21)
Increases in unrecognized tax benefits related to current year tax positions	139
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(50)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(18)
Changes in unrecognized tax benefits due to foreign currency translation	(3)
Balance as of March 31, 2022	$	636

As of March 31, 2022, approximately $371 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 $36 million as of March 31, 2022 and $34 million as of March 31, 2021.

We file income tax returns in the United States, including various state and local jurisdictions. As of March 31, 2022, 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 2017. In addition, as of the period ended March 31, 2022, we remain subject to income tax examination for several other jurisdictions including in Switzerland for fiscal years after 2013, Canada for fiscal years after 2014, Sweden for fiscal years after 2016, Italy for fiscal years after 2020, France for fiscal years after 2019, Germany for fiscal years after 2016, and the United Kingdom for fiscal years after 2020.

We are also currently under income tax examination in the United States for fiscal years 2018 through 2020, Germany for fiscal years 2017 through 2019, 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-related uncertain tax positions.

It is also reasonably possible that an additional reduction of up to $6 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.